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A volatility spillover analysis with realized semi(co)variances in Australian electricity markets

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  • Chanatásig-Niza, Evelyn
  • Ciarreta, Aitor
  • Zarraga, Ainhoa

Abstract

Volatility spillovers are a characteristic of interconnected electricity markets. We use high-frequency prices to analyze the transmission of volatility across five Australian regional electricity markets. We propose several models: The first includes only realized variances; the second adds realized covariances; the last two include positive and negative realized semi(co)variances, separately, obtained from the decomposition of the realized covariance matrix into components based on the sign of the underlying returns. We carry out the analysis for both static and dynamic frameworks and relate the behavior of spillovers to major events and policies affecting the markets. Results show that ignoring covariances results in spillovers being underestimated and highlight the importance of the role of semi(co)variances in detecting asymmetric spillovers. Finally, we discuss implications for short-run market participants and long-term planning by regulators.

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  • Chanatásig-Niza, Evelyn & Ciarreta, Aitor & Zarraga, Ainhoa, 2022. "A volatility spillover analysis with realized semi(co)variances in Australian electricity markets," Energy Economics, Elsevier, vol. 111(C).
    • Handle: RePEc:eee:eneeco:v:111:y:2022:i:c:s0140988322002407
    DOI: 10.1016/j.eneco.2022.106076
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    More about this item

    Keywords

    Electricity prices; Volatility spillovers; Semivariance; Semicovariance; Asymmetric effects;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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