By using time series of hourly spot prices and volumes of four European electricity markets, we show that the total traded volume has negligible impact in determining the volatility of electricity prices. This result is robust to the different econometric techniques adopted. Our main explanation for the absence of a positive relation between traded volume and volatility is the lack of trading in the market based on superior information. We also discuss other theoretical explanations based on models borrowed from financial economics.
Does it take Volume to move Electricity prices?
GIANFREDA, Angelica;Renò, Roberto
2007-01-01
Abstract
By using time series of hourly spot prices and volumes of four European electricity markets, we show that the total traded volume has negligible impact in determining the volatility of electricity prices. This result is robust to the different econometric techniques adopted. Our main explanation for the absence of a positive relation between traded volume and volatility is the lack of trading in the market based on superior information. We also discuss other theoretical explanations based on models borrowed from financial economics.
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