Understanding Electricity Price Volatility within and Across Markets

Dice Center Working Paper No. 2004-12

42 Pages Posted: 17 Aug 2004

See all articles by Mika Goto

Mika Goto

Central Research Institute of Electric Power Industry

George Andrew Karolyi

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: July 7, 2004

Abstract

This study analyzes how electricity price volatility evolves over time for different electricity trading hubs in several deregulated markets around the world. The goal is to uncover common features across hubs within each market in the daily spot price volatility processes related to seasonality, mean reversion, conditionally autoregressive heteroskedasticity (ARCH) and possibly time-dependent jumps. We apply our analysis to markets in U.S., Nord Pool, and Australia. We show that ARCH and time-dependent jumps are important statistical features of price volatility across all hubs in each market but with different levels of intensity. We also find that inferences about the role of seasonality components are sensitive to modeling of the ARCH and jump features.

Keywords: Electricity prices, volatility, market structure, international markets

JEL Classification: L94, G13

Suggested Citation

Goto, Mika and Karolyi, George Andrew, Understanding Electricity Price Volatility within and Across Markets (July 7, 2004). Dice Center Working Paper No. 2004-12, Available at SSRN: https://ssrn.com/abstract=576982 or http://dx.doi.org/10.2139/ssrn.576982

Mika Goto (Contact Author)

Central Research Institute of Electric Power Industry ( email )

Chiyoda-ku Tokyo 100-8126
Japan
+81 3 3201 6601 (Phone)
+81 3 3287 2805 (Fax)

George Andrew Karolyi

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

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