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Modelling Electricity Prices: International Evidence *
Author(s) -
Escribano Alvaro,
Ignacio Peña J.,
Villaplana Pablo
Publication year - 2011
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/j.1468-0084.2011.00632.x
Subject(s) - volatility clustering , mean reversion , volatility (finance) , economics , autoregressive conditional heteroskedasticity , electricity , econometrics , spot contract , seasonality , electricity market , financial economics , mathematics , statistics , futures contract , electrical engineering , engineering
This article analyses the evolution of electricity prices in deregulated markets. We present a general class of models that simultaneously takes into account several factors: seasonality, mean reversion, GARCH behaviour and time‐dependent jumps. The models are applied to daily equilibrium spot prices of eight electricity markets. Eight different nested models were estimated to compare the relative importance of each factor in each of the eight markets. We find strong evidence that electricity equilibrium prices are mean‐reverting, with volatility clustering (GARCH) and with jumps of time‐dependent intensity, even after adjusting for seasonality.