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Transmission of prices and price volatility in Australian electricity spot markets: a multivariate GARCH analysis

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  • Worthington, Andrew
  • Kay-Spratley, Adam
  • Higgs, Helen

Abstract

This paper examines the transmission of spot electricity prices and price volatility among the five Australian electricity markets in the National Electricity Market (NEM): namely, New South Wales (NSW), Queensland (QLD), South Australia (SA), the Snowy Mountains Hydroelectric Scheme (SNO) and Victoria (VIC). A multivariate generalised autoregressive conditional heteroskedasticity (MGARCH) model is used to identify the source and magnitude of spillovers. The results indicate the presence of positive own mean spillovers in only a small number of markets and no mean spillovers between any of the markets. This appears to be directly related to the limitations of the present system of regional interconnectors. Nevertheless, the large number of significant ownvolatility and cross-volatility spillovers in all five markets indicates the presence of strong ARCH and GARCH effects. Contrary to evidence from studies in North American electricity markets, the results also indicate that Australian electricity spot prices are stationary.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 27 (2005)
Issue (Month): 2 (March)
Pages: 337-350

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Handle: RePEc:eee:eneeco:v:27:y:2005:i:2:p:337-350

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  1. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
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  15. repec:cup:etheor:v:11:y:1995:i:1:p:122-50 is not listed on IDEAS
  16. Tai, Chu-Sheng, 2000. "Time-varying market, interest rate, and exchange rate risk premia in the US commercial bank stock returns," Journal of Multinational Financial Management, Elsevier, vol. 10(3-4), pages 397-420, December.
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