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Modeling the stylized facts of wholesale system marginal price (SMP) and the impacts of regulatory reforms on the Greek Electricity Market

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  • G. Papaioannou
  • P. Papaioannou
  • N. Parliaris
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    Abstract

    This work presents the results of an empirical research with the target of modeling the stylized facts of the daily expost System Marginal Price (SMP) of the Greek wholesale electricity market, using data from January 2004 to December of 2011. SMP is considered here as the footprint of an underline stochastic and nonlinear process that bears all the information reflecting not only the effects of changes in endogenous or fundamental factors of the market but also the impacts of a series of regulatory reforms that have continuously changed the market's microstructure. To capture the dynamics of the conditional mean and volatility of SMP that generate the stylized facts(mean reversion, price spikes, fat tails price distribution etc), a number of ARMAX GARCH models have been estimated using as regressors an extensive set of fundamental factors in the Greek electricity market as well as dummy variables that mimic the history of Regulator's interventions. The findings show that changes in the microstructure of the market caused by the reforms have strongly affected the dynamic evolution of SMP and that the best found model captures adequately the stylized facts of the series that other electricity and financial markets share. The dynamics of the conditional volatility generated by the model can be extremely useful in the efforts that are under way towards market restructuring so the Greek market to be more compatible with the requirements of the European Target Model.

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    File URL: http://arxiv.org/pdf/1401.5452
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    Paper provided by arXiv.org in its series Papers with number 1401.5452.

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    Date of creation: Jan 2014
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    Handle: RePEc:arx:papers:1401.5452

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    1. Federico Boffa & Viswanath Pingali & Davide Vannoni, 2009. "Increasing Market Interconnection: An analysis of the Italian Electricity Spot Market," Working papers, Former Department of Economics and Public Finance "G. Prato", University of Torino 4, Former Department of Economics and Public Finance "G. Prato", University of Torino.
    2. Bask , Mikael & Liu , Tung & Widerberg , Anna, 2006. "The stability of electricity prices: estimation and inference of the Lyapunov exponents," Research Discussion Papers, Bank of Finland 9/2006, Bank of Finland.
    3. Angelica Gianfreda, 2010. "Volatility and Volume Effects in European Electricity Spot Markets," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 39(s1), pages 47-63, 02.
    4. Byström, Hans, 2001. "Extreme Value Theory and Extremely Large Electricity Price Changes," Working Papers, Lund University, Department of Economics 2001:19, Lund University, Department of Economics.
    5. Kalantzis, Fotis & Sakellaris, Kostis, 2012. "Investigating the Impact of the Greek Electricity Market Reforms on its Day-Ahead Market Prices," MPRA Paper 37794, University Library of Munich, Germany.
    6. Josep Perello & Miquel Montero & Luigi Palatella & Ingve Simonsen & Jaume Masoliver, 2006. "Entropy of the Nordic electricity market: anomalous scaling, spikes, and mean-reversion," Papers physics/0609066, arXiv.org.
    7. Bruno Bosco & Lucia Parisio & Matteo Pelagatti, 2007. "Deregulated Wholesale Electricity Prices in Italy: An Empirical Analysis," International Advances in Economic Research, Springer, Springer, vol. 13(4), pages 415-432, November.
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