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Long-term Memory in Electricity Prices: Czech Market Evidence

Author

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  • Ladislav KRISTOUFEK

    (Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic (UTIA), and Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague)

  • Petra LUNACKOVA

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague)

Abstract

We analyze the long-term memory properties of hourly prices of electricity in the Czech Republic between 2009 and 2012. Various statistical properties of these prices are studied, and as the dynamics of electricity prices is dominated by cycles—in particular intraday and daily—we opt for detrended fluctuation analysis, which is well suited to such specific series. We find that electricity prices are non-stationary but strongly mean-reverting, which distinguishes them from prices of other financial assets, which are usually characterized as unit root series. Such behavior is attributed to specific features of electricity, in particular its non-storability. Additionally, we argue that the rapid mean-reversion is due to the principles of electricity spot prices. These properties are shown to be stable across all the years studied.

Suggested Citation

  • Ladislav KRISTOUFEK & Petra LUNACKOVA, 2013. "Long-term Memory in Electricity Prices: Czech Market Evidence," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 63(5), pages 407-424, November.
  • Handle: RePEc:fau:fauart:v:63:y:2013:i:5:p:407-424
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    References listed on IDEAS

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    1. Luňáčková, Petra & Průša, Jan & Janda, Karel, 2017. "The merit order effect of Czech photovoltaic plants," Energy Policy, Elsevier, vol. 106(C), pages 138-147.
    2. Bennedsen, Mikkel, 2017. "A rough multi-factor model of electricity spot prices," Energy Economics, Elsevier, vol. 63(C), pages 301-313.
    3. Mikkel Bennedsen, 2015. "Rough electricity: a new fractal multi-factor model of electricity spot prices," CREATES Research Papers 2015-42, Department of Economics and Business Economics, Aarhus University.
    4. Fan, Qingju, 2016. "Asymmetric multiscale detrended fluctuation analysis of California electricity spot price," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 442(C), pages 252-260.
    5. Fan, Qingju & Li, Dan, 2015. "Multifractal cross-correlation analysis in electricity spot market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 429(C), pages 17-27.

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    More about this item

    Keywords

    electricity; Hurst exponent; persistence; cycles;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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