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Systematic Features of High-Frequency Volatility in Australian Electricity Markets: Intraday Patterns, Information Arrival and Calendar Effects

Abstract:
This paper investigates the intraday price volatility process in four Australian wholesale electricity markets; namely New South Wales, Queensland, South Australia and Victoria. The data set consists of half-hourly electricity prices and demand volumes over the period January 1, 2002 to June 1, 2003. A range of processes including GARCH, RiskMetrics, normal Asymmetric Power ARCH or APARCH, Student APARCH and skewed Student APARCH are used to model the time-varying variance in prices and the inclusion of news arrival as proxied by the contemporaneous volume of demand, time-of-day, day-of-week and month-of-year effects as exogenous explanatory variables. The skewed Student APARCH model, which takes account of right skewed and fat tailed characteristics, produces the best results in all four markets. The results indicate significant innovation (ARCH effects) and volatility (GARCH effects) spillovers in the conditional standard deviation equation, even with market and calendar effects included. Intraday prices also exhibit significant asymmetric responses of volatility to the flow of information.

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Energy Specializations: Energy Modeling – Energy Data, Modeling, and Policy Analysis; Energy Modeling – Other; Electricity – Markets and Prices ; Electricity – Policy and Regulation

JEL Codes:
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
C59 - Econometric Modeling: Other
D42 - Market Structure, Pricing, and Design: Monopoly
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Keywords: Electricity markets, GARCH, APARCH, Intraday price volatility, Calendar effects, Australia, Information arrival

DOI: 10.5547/ISSN0195-6574-EJ-Vol26-No4-2


Published in Volume 26, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.