Equation-by-Equation Estimation of Multivariate Periodic Electricity Price Volatility

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dc.contributor.author Escribano, Álvaro
dc.contributor.author Sucarrat, Genaro
dc.contributor.editor Universidad Carlos III de Madrid. Departamento de Economía
dc.date.accessioned 2016-07-27T07:53:05Z
dc.date.available 2016-07-27T07:53:05Z
dc.date.issued 2016-07
dc.identifier.issn 2340-5031
dc.identifier.uri http://hdl.handle.net/10016/23436
dc.description.abstract Electricity prices are characterised by strong autoregressive persistence, periodicity (e.g. intraday, day-of-the week and month-of-the-year effects), large spikes or jumps, GARCH and -as evidenced by recent findings- periodic volatility. We propose a multivariate model of volatility that decomposes volatility multiplicatively into a non-stationary (e.g. periodic) part and a stationary part with log-GARCH dynamics. Since the model belongs to the log-GARCH class, the model is robust to spikes or jumps, allows for a rich variety of volatility dynamics without restrictive positivity constraints, can be estimated equation-by-equation by means of standard methods even in the presence of feedback, and allows for Dynamic Conditional Correlations (DCCs) that can –optionally- be estimated subsequent to the volatilities. We use the model to study the hourly day-ahead system prices at Nord Pool, and find extensive evidence of periodic volatility and volatility feedback. We also find that volatility is characterised by (positive) leverage in half of the hours, and that a DCC model provides a better fit of the conditional correlations than a Constant Conditional Correlation (CCC) model.
dc.format.mimetype application/pdf
dc.language.iso eng
dc.relation.ispartofseries UC3M working papers. Economics
dc.relation.ispartofseries 16-11
dc.rights Atribución-NoComercial-SinDerivadas 3.0 España
dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.subject.other Electricity prices
dc.subject.other financial return
dc.subject.other volatility
dc.subject.other ARCH
dc.subject.other exponential GARCH
dc.subject.other log-GARCH
dc.subject.other Multivariate GARCH
dc.subject.other Dynamic Conditional Correlations
dc.subject.other inverse leverage
dc.subject.other Nord Pool
dc.title Equation-by-Equation Estimation of Multivariate Periodic Electricity Price Volatility
dc.type workingPaper
dc.subject.jel C22
dc.subject.jel C32
dc.subject.jel C51
dc.subject.jel C58
dc.rights.accessRights openAccess
dc.type.version draft
dc.identifier.uxxi DT/0000001475
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