Understanding Electricity Price Volatility within and Across Markets
Dice Center Working Paper No. 2004-12
42 Pages Posted: 17 Aug 2004
Date Written: July 7, 2004
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: Suggested Citation