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Understanding Electricity Price Volatility within and across Markets

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  • Goto, Mika

    (Central Research Institute of Electric Power Industry)

  • Karolyi, G. Andrew

    (Ohio State U)

Abstract

This study analyzes how electricity price volatility evolves over time for different electricity trading hubs in several deregulated markets around the world. The goal is to uncover common features across hubs within each market in the daily spot price volatility processes related to seasonality, mean reversion, conditionally autoregressive heteroskedasticity (ARCH) and possibly time-dependent jumps. We apply our analysis to markets in U.S., Nord Pool, and Australia. We show that ARCH and time-dependent jumps are important statistical features of price volatility across all hubs in each market but with different levels of intensity. We also find that inferences about the role of seasonality components are sensitive to modeling of the ARCH and jump features.

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File URL: http://www.cob.ohio-state.edu/fin/dice/papers/2004/2004-12.pdf
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Bibliographic Info

Paper provided by Ohio State University, Charles A. Dice Center for Research in Financial Economics in its series Working Paper Series with number 2004-12.

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Date of creation: Jul 2004
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Handle: RePEc:ecl:ohidic:2004-12

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Web page: http://www.cob.ohio-state.edu/fin/dice/list.htm
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Citations

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Cited by:
  1. Hipòlit Torró, 2007. "Forecasting Weekly Electricity Prices at Nord Pool," Working Papers 2007.88, Fondazione Eni Enrico Mattei.
  2. Ullrich, Carl J., 2012. "Realized volatility and price spikes in electricity markets: The importance of observation frequency," Energy Economics, Elsevier, vol. 34(6), pages 1809-1818.
  3. Woo, C.K. & Zarnikau, J. & Moore, J. & Horowitz, I., 2011. "Wind generation and zonal-market price divergence: Evidence from Texas," Energy Policy, Elsevier, vol. 39(7), pages 3928-3938, July.
  4. Rammerstorfer, Margarethe & Wagner, Christian, 2009. "Reforming minute reserve policy in Germany: A step towards efficient markets?," Energy Policy, Elsevier, vol. 37(9), pages 3513-3519, September.
  5. Le Pen, Yannick & Sévi, Benoît, 2010. "Volatility transmission and volatility impulse response functions in European electricity forward markets," Energy Economics, Elsevier, vol. 32(4), pages 758-770, July.
  6. Lucia, Julio J. & Torró, Hipòlit, 2011. "On the risk premium in Nordic electricity futures prices," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 750-763, October.
  7. Hipòlit Torró & Julio Lucia, 2008. "Short-term electricity futures prices: Evidence on the time-varying risk premium," Working Papers. Serie EC 2008-08, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  8. Guthrie, Graeme & Videbeck, Steen, 2007. "Electricity spot price dynamics: Beyond financial models," Energy Policy, Elsevier, vol. 35(11), pages 5614-5621, November.
  9. Chan, Kam Fong & Gray, Philip & van Campen, Bart, 2008. "A new approach to characterizing and forecasting electricity price volatility," International Journal of Forecasting, Elsevier, vol. 24(4), pages 728-743.
  10. Haugom, Erik & Ullrich, Carl J., 2012. "Forecasting spot price volatility using the short-term forward curve," Energy Economics, Elsevier, vol. 34(6), pages 1826-1833.

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