In this paper the volatility structure of electricity prices in the Italian zonal market is analyzed. Volatility should be a primary concern for investors and operators on energy markets because it is related to investment uncertainty and power plant management. Even if volatility of electricity prices received extensive attention in the past, the relationship with traded and demanded electricity volumes has not been explored. We try to fill this gap estimating the volatility-volume link within the framework of ARMA-GARCH models, using daily data on a five year period. Opposite to what usually argued about electricity prices, we found evidence of direct leverage effect in the Italian market. Furthermore our estimates highlight an inverse relation between price volatility and lagged volumes.
Volatility Structures of the Italian Electricity Market:An Analysis of Leverage and Volume Effects
GIANFREDA, Angelica;GROSSI, Luigi;OLIVIERI, Darionino
2010-01-01
Abstract
In this paper the volatility structure of electricity prices in the Italian zonal market is analyzed. Volatility should be a primary concern for investors and operators on energy markets because it is related to investment uncertainty and power plant management. Even if volatility of electricity prices received extensive attention in the past, the relationship with traded and demanded electricity volumes has not been explored. We try to fill this gap estimating the volatility-volume link within the framework of ARMA-GARCH models, using daily data on a five year period. Opposite to what usually argued about electricity prices, we found evidence of direct leverage effect in the Italian market. Furthermore our estimates highlight an inverse relation between price volatility and lagged volumes.
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