Gas Price Caps and Volatility Transmission in Commodity and Equity Markets

95 Pages Posted: 12 Feb 2024

See all articles by Corrado Botta

Corrado Botta

Bocconi University; University of Brescia

Roy Cerqueti

University Sapienza Rome

Roberto Savona

University of Brescia - Department of Economics and Management

Date Written: January 14, 2024

Abstract

We study the impact of price cap mechanisms in the Natural Gas Title Transfer Facility on the commodity and equity markets. Our key findings are as follows: (i) a cap rule based on fixed price mechanism lowers the price consistently in most of the markets with no effect on volatility, thus acting as a possible short-run policy measure; (ii) the gas price cap mechanism adopted by the European Commission and currently in force seems to play a minor role in containing potential price spikes and has no significant impact in mitigating price volatility; (iii) a mechanism directly linked to the gas price volatility seems to perform better in containing gas prices and taming volatility spillover effects in commodity and equity markets. Our approach provides a way to assess ex-ante the market impacts of alternative policy interventions.

Keywords: Gas Price, Price-cap mechanism, Volatility spillover, Commodity prices, Equity markets

JEL Classification: G17, Q02, L78

Suggested Citation

Botta, Corrado and Cerqueti, Roy and Savona, Roberto, Gas Price Caps and Volatility Transmission in Commodity and Equity Markets (January 14, 2024). Available at SSRN: https://ssrn.com/abstract=4694451 or http://dx.doi.org/10.2139/ssrn.4694451

Corrado Botta (Contact Author)

Bocconi University ( email )

Milano
Italy

University of Brescia ( email )

Piazza del Mercato, 15
25122 Brescia
Italy

Roy Cerqueti

University Sapienza Rome ( email )

Piazzale Aldo Moro 5
Roma, Rome 00185
Italy

Roberto Savona

University of Brescia - Department of Economics and Management ( email )

Contrada Santa Chiara, 50
BRESCIA, BS 25122
Italy

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