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A multivariate GARCH analysis of the domestic transmission of energy commodity prices and volatility: A comparison of the peak and off-peak periods in the Australian electricity spot market

Author

Listed:
  • Andrew C. Worthington
  • Helen Higgs

Abstract

This paper examines the transmission of spot electricity prices and price volatility among the five Australian electricity markets in the National Electricity Market (NEM): namely, New South Wales (NSW), Queensland (QLD), South Australia (SA), Snowy Mountains Hydroelectric Scheme (SNO) and Victoria (VIC). A multivariate generalised autoregressive conditional heteroskedasticity (MGARCH) model is used to identify the source and magnitude of innovations and spillovers. The results indicate the inability of the existing network of interconnectors to create a substantially integrated national electricity market and that, for the most part, the sizeable differences in peak and off-peak spot prices between most of the regions will remain, at least in the short term. However, own-volatility and cross-volatility spillovers are significant for nearly all markets, indicating the presence of strong ARCH and GARCH effects. Strong own and cross-persistent volatility are also evident in all Australian regional electricity markets. This indicates that while the limited nature of the interconnectors between the separate regional spot markets prevents full integration of these markets, shocks or innovations in particular markets still exert an influence on price volatility.

Suggested Citation

  • Andrew C. Worthington & Helen Higgs, 2003. "A multivariate GARCH analysis of the domestic transmission of energy commodity prices and volatility: A comparison of the peak and off-peak periods in the Australian electricity spot market," School of Economics and Finance Discussion Papers and Working Papers Series 140, School of Economics and Finance, Queensland University of Technology.
  • Handle: RePEc:qut:dpaper:140
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    File URL: http://external-apps.qut.edu.au/business/documents/discussionPapers/2003/DP%20140%20Worthington.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Market integration; spot electricity prices; mean and volatility spillovers; multivariate GARCH;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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