Realized Volatility and Price Spikes in Electricity Markets: The Importance of Observation Frequency

46 Pages Posted: 16 Feb 2009 Last revised: 30 Jun 2009

See all articles by Carl J. Ullrich

Carl J. Ullrich

James Madison University - College of Business; Virginia Tech - Department of Finance, Insurance, and Business Law

Date Written: February 13, 2009

Abstract

This paper uses high frequency wholesale electricity spot price data from 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 1,500% to 3,000%. I present evidence that nonparametric jump detection tests based the difference between realized variance and bipower variation are not reliable for electricity prices. Because daily electricity prices are average prices, fitting models to data sampled at the daily frequency can never lead to a "correct" specification for the underlying data generating mechanism.

Keywords: realized volatility, bipower variation, observation frequency, electricity markets, price spikes

JEL Classification: C14, Q40, L94, C52, G10

Suggested Citation

Ullrich, Carl J., Realized Volatility and Price Spikes in Electricity Markets: The Importance of Observation Frequency (February 13, 2009). EFA 2009 Bergen Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1342586 or http://dx.doi.org/10.2139/ssrn.1342586

Carl J. Ullrich (Contact Author)

James Madison University - College of Business ( email )

Harrisonburg, VA 22807
United States

Virginia Tech - Department of Finance, Insurance, and Business Law ( email )

1016 Pamplin Hall (0221)
Blacksburg, VA 24060-0221
United States

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