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Realized volatility and jump testing in the Japanese electricity spot market

Author

Listed:
  • Aitor Ciarreta

    (University of the Basque Country, UPV/EHU)

  • Peru Muniain

    (University of the Basque Country, UPV/EHU)

  • Ainhoa Zarraga

    (University of the Basque Country, UPV/EHU)

Abstract

The analysis of price volatility in electricity markets is increasingly significant for market participants. Realized measures have proved to be a useful tool. In this paper, we analyze realized volatility calculated from half-hour electricity prices on the Japanese spot market for the period from April 2005 to December 2015. Our interest stems from the fact that Japan is an isolated country with an electricity market in the process of being deregulated. We apply six alternative jump tests available in the literature to decompose total realized variation into jump and continuous components. We find large differences from one test to another in the number of jump-days identified arising from the nature of the data and the characteristics of the tests. We then estimate several heterogeneous autoregressive models for total and decomposed realized volatility and also consider GARCH innovations. Our results show high persistence of volatility and significant jumps. Finally, we assess the performance and forecasting ability of the models using in-sample and out-of-sample criteria. The model selected with both types of criteria includes the jumps obtained using the Jiang and Oomen (J Econom 144:352–370, 2008) jump test as regressors together with lagged total variation and GARCH innovations. Our results are significant in helping participants in the Japanese electricity market to take optimal decisions based on price characteristics.

Suggested Citation

  • Aitor Ciarreta & Peru Muniain & Ainhoa Zarraga, 2020. "Realized volatility and jump testing in the Japanese electricity spot market," Empirical Economics, Springer, vol. 58(3), pages 1143-1166, March.
  • Handle: RePEc:spr:empeco:v:58:y:2020:i:3:d:10.1007_s00181-018-1577-6
    DOI: 10.1007/s00181-018-1577-6
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    References listed on IDEAS

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    1. Gaoxiu Qiao & Yangli Cao & Feng Ma & Weiping Li, 2023. "Liquidity and realized covariance forecasting: a hybrid method with model uncertainty," Empirical Economics, Springer, vol. 64(1), pages 437-463, January.

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    More about this item

    Keywords

    Realized volatility; Jump tests; Heterogeneous autoregressive models; Electricity markets; GARCH;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • Q47 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy Forecasting

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