Do futures prices help forecast the spot price in the Nordic power market?
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- Master's theses (HH) 
This thesis focuses on the Nordic electricity market, mainly the ability of futures contracts to forecast subsequent electricity spot prices in the Nordic power market. Our forecasting horizons are 1 to 4 months. We first analyze the basis and the relative basis to understand the behavior and structure of the market. We then introduce standard models to analyze the relationship between the electricity derivatives and the spot price, we include in these models seasonal effect and market structure - mainly backwardation or contango to further analyze these variables' effect on the spot price. Furthermore, we evaluate our econometric models' performance accuracy at forecasting subsequent spot prices or changes in the spot price by running our results on an out-of-sample and evaluating their subsequent electricity spot price forecast accuracy. We use monthly electricity spot price data in the Nord pool market for the period November 2003 - March 2021 and monthly electricity futures contracts data for the same period. In addition water reservoir levels, electricity consumption, and production data for Nordic countries are also included. The results show that our models are good at forecasting the subsequent spot prices at least for the shorter term and in some cases, good as unadjusted or naive models. This is more notable in the time before covid 19 in our out-of-sample period. We concluded that the market has become unbiased and more efficient nowadays in a way that futures prices or the basis already incorporate information about spot price to some extent.