Electricity Pricing Using a Periodic GARCH-M Model with Conditional Skewness and Kurtosis Components

Energy Economics, Forthcoming

Energy Economics, Vol. 95, No. 1, 2021

50 Pages Posted: 28 Jan 2021 Last revised: 22 Apr 2022

See all articles by Filippos Ioannides

Filippos Ioannides

Aristotle University of Thessaloniki, Greece

Kyriaki Kosmidou

Aristotle University of Thessaloniki - Department of Economics

Christos S. Savva

Cyprus University of Technology - Department of Commerce, Finance and Shipping

Panayiotis Theodossiou

Ball State University

Date Written: December 26, 2020

Abstract

This paper extends the investigation of the stochastic properties of electricity price growth rates beyond their first two conditional moments allowing for the impact of seasonality on their parameters. The main contributions include the breakdown of electricity price risk into its pure and skewness price components and the development of a risk neutral forecasting equation for electricity prices. Empirical results using ten-years of hourly wholesale prices from the Day-Ahead electricity market in Germany depict the presence of seasonality, strong mean reversion and up-to third degree time-varying moments.

Keywords: Risk analysis; asymmetric volatility; pure and skewness price of risk; risk neutral equilibrium electricity prices; skewed generalized error distribution

JEL Classification: C18, C22, C51, Q02, Q41, Q47

Suggested Citation

Ioannides, Filippos and Kosmidou, Kyriaki and Savva, Christos S. and Theodossiou, Panayiotis, Electricity Pricing Using a Periodic GARCH-M Model with Conditional Skewness and Kurtosis Components (December 26, 2020). Energy Economics, Forthcoming, Energy Economics, Vol. 95, No. 1, 2021, Available at SSRN: https://ssrn.com/abstract=3755428

Filippos Ioannides

Aristotle University of Thessaloniki, Greece ( email )

Thessaloniki
Greece

Kyriaki Kosmidou

Aristotle University of Thessaloniki - Department of Economics ( email )

Thessaloniki, 54006
Greece

Christos S. Savva

Cyprus University of Technology - Department of Commerce, Finance and Shipping ( email )

Limassol, 3603
Cyprus
00357252349 (Phone)
00357252674 (Fax)

HOME PAGE: http://www.csavva.com

Panayiotis Theodossiou (Contact Author)

Ball State University ( email )

2000 W. University Ave
Muncie, IN Delaware 47306
United States

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