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Realized volatility and price spikes in electricity markets: The importance of observation frequency

  • Ullrich, Carl J.
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    This paper uses high frequency spot price data from eight wholesale electricity markets in Australia, Canada, and the United States to estimate realized volatility and the frequency of price spikes. I find similar levels of realized volatility in Australia and North America, with estimates ranging from 1500% to 2700%, much greater than estimates reported previously in the literature. In hourly data, the frequency of price spikes ranges from approximately 35% to 40% in seven of eight markets. I present evidence that increasing the lag length in the calculation of bipower variation improves jump detection in electricity prices.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0140988312001399
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    Article provided by Elsevier in its journal Energy Economics.

    Volume (Year): 34 (2012)
    Issue (Month): 6 ()
    Pages: 1809-1818

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    Handle: RePEc:eee:eneeco:v:34:y:2012:i:6:p:1809-1818
    Contact details of provider: Web page: http://www.elsevier.com/locate/eneco

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    7. Alvaro Escribano & Juan Ignacio Peña & Pablo Villaplana, 2002. "Modeling Electricity Prices: International Evidence," Economics Working Papers we022708, Universidad Carlos III, Departamento de Economía.
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    14. Mount, Timothy D. & Ning, Yumei & Cai, Xiaobin, 2006. "Predicting price spikes in electricity markets using a regime-switching model with time-varying parameters," Energy Economics, Elsevier, vol. 28(1), pages 62-80, January.
    15. Xin Huang & George Tauchen, 2005. "The Relative Contribution of Jumps to Total Price Variance," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 3(4), pages 456-499.
    16. Guthrie, Graeme & Videbeck, Steen, 2002. "High Frequency Electricity Spot Price Dynamics: An Intra-day Markets Approach," Working Paper Series 3891, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    17. Knittel, Christopher R. & Roberts, Michael R., 2005. "An empirical examination of restructured electricity prices," Energy Economics, Elsevier, vol. 27(5), pages 791-817, September.
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    19. Zareipour, Hamidreza & Bhattacharya, Kankar & Canizares, Claudio A., 2007. "Electricity market price volatility: The case of Ontario," Energy Policy, Elsevier, vol. 35(9), pages 4739-4748, September.
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    21. Hlouskova, Jaroslava & Kossmeier, Stephan & Obersteiner, Michael & Schnabl, Alexander, 2005. "Real options and the value of generation capacity in the German electricity market," Review of Financial Economics, Elsevier, vol. 14(3-4), pages 297-310.
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