Liquidity Dynamics in the Nordic Financial Power Market : An Empirical Impact Analysis of the Liquidity at the NASDAQ OMX Commodities Exchange Following Nord Pool’s 2021 Mispricing of the Nordic System Price

Fløtre, Ola; Thorsen, Jone
Master thesis
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URI
https://hdl.handle.net/11250/3131093
Date
2023
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Abstract
In this study, we explore liquidity dynamics in the Nordic financial power market in late

fall 2021. We focus on the impact of a pricing error in the Nordic power derivatives’

reference: the Nordic system price. Our objective is to analyze market liquidity changes

and their causes.

Using a difference-in-differences approach, we compare liquidity changes between the

Nordic and German markets, the latter serving as a control based on similar market

dynamics. Our analysis centers on the bid-ask spread found in our reconstructed order

books.

Following the mispricing event, we observe an increased bid-ask spread in the Nordic

market, signaling reduced liquidity. This could stem from decreased investor trust and

heightened caution. We also examine liquidity through volume and depth tests but face

data limitations.