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No chills or burns from temperature surprises: An empirical analysis of the weather derivatives market
Author(s) -
Chincarini Ludwig
Publication year - 2011
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.20463
Subject(s) - futures contract , chills , derivatives market , economics , market liquidity , futures market , financial economics , market efficiency , derivative (finance) , monetary economics , medicine , pathology
This article examines the efficiency of the weather futures market traded on the CME in both HDD and CDD futures contracts in 18 cities across the United States. Efficiency is examined in three ways. First, by comparing the market's implied forecasts for the weather against other forecasts. Second, by looking at whether market's overreact or under‐react to temperature surprises. Third, by looking at weather derivative patterns across cities. We find that generally the market seems very efficient despite its lack of liquidity. We also find risk premia that seem to vary across cities and over time. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark 31:1–33, 2011