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Predictability of price movements in deregulated electricity markets

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  • Uritskaya, Olga Y.
  • Uritsky, Vadim M.

Abstract

In this paper we investigate predictability of electricity prices in the Canadian provinces of Alberta and Ontario, as well as in the US Mid-C market. Using scale-dependent detrended fluctuation analysis, spectral analysis, and the probability distribution analysis we show that the studied markets exhibit strongly anti-persistent properties suggesting that their dynamics can be predicted based on historic price records across the range of time scales from 1h to one month. For both Canadian markets, the price movements reveal three types of correlated behavior which can be used for forecasting. The discovered scenarios remain the same on different time scales up to one month as well as for on- and off-peak electricity data. These scenarios represent sharp increases of prices and are not present in the Mid-C market due to its lower volatility. We argue that extreme price movements in this market should follow the same tendency as the more volatile Canadian markets. The estimated values of the Pareto indices suggest that the prediction of these events can be statistically stable. The results obtained provide new relevant information for managing financial risks associated with the dynamics of electricity derivatives over time frame exceeding one day.

Suggested Citation

  • Uritskaya, Olga Y. & Uritsky, Vadim M., 2015. "Predictability of price movements in deregulated electricity markets," Energy Economics, Elsevier, vol. 49(C), pages 72-81.
  • Handle: RePEc:eee:eneeco:v:49:y:2015:i:c:p:72-81
    DOI: 10.1016/j.eneco.2015.01.012
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    References listed on IDEAS

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    1. repec:gam:jeners:v:12:y:2019:i:4:p:618-:d:206208 is not listed on IDEAS
    2. Avci-Surucu, Ezgi & Aydogan, A. Kursat & Akgul, Doganbey, 2016. "Bidding structure, market efficiency and persistence in a multi-time tariff setting," Energy Economics, Elsevier, vol. 54(C), pages 77-87.

    More about this item

    Keywords

    Deregulated electricity markets; Efficient market hypothesis; Detrended fluctuation analysis; Financial forecasting;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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