Please use this identifier to cite or link to this item: https://hdl.handle.net/10356/164386
Title: Exploring dependence structures among European electricity markets: static and dynamic copula-GARCH and dynamic state-space approaches
Authors: Ly, Sel
Sriboonchitta, Songsak
Tang, Jiechen
Wong, Wing-Keung
Keywords: Engineering::Electrical and electronic engineering
Issue Date: 2022
Source: Ly, S., Sriboonchitta, S., Tang, J. & Wong, W. (2022). Exploring dependence structures among European electricity markets: static and dynamic copula-GARCH and dynamic state-space approaches. Energy Reports, 8, 3827-3846. https://dx.doi.org/10.1016/j.egyr.2022.02.308
Journal: Energy Reports
Abstract: In this paper, we examine various characteristics of both base and peak electricity spot prices and their returns, and investigate dependence structures, extreme co-movements, risk spillovers, and integration relationships among the five major European electricity markets, including France, Germany, the Netherlands, Spain, and the UK. To do so, we propose a new perspective by applying a hybrid of ARMA-GARCH, static and dynamic copulas, and dynamic state-space models with the Kalman filter to address the issue. Based on the results of the ARMA-GJR-GARCH model, we first find that there are spillover effects in the returns of both base and peak spot prices in the five European electricity markets, and there are heteroskedastic, asymmetric, and leverage effects with negative and positive shocks, including spikes and drops during both base and peak load periods. Hence, a decrease in prices will boom the variance of the returns, and a decrease in returns can lead to a much greater increase in volatility. Second, there exist some extents of positive dependencies, tail dependencies, and extreme co-movements among the European electricity markets based on the copula models. In addition, we find that the degree of (tail) dependence and the potential state of market integration are stronger and higher during the peak period than the base period, implying that the European electricity markets could boom or crash together, especially during the peak load period. Further, the results of both the dynamic copulas and dynamic state-space models show that most pairs of the European electricity markets co-move symmetrically and have a time-varying dependence, but do not appear to grow over time. Finally, we provide an application of the copula-GARCH model in estimating and predicting risk spillovers across the five European electricity markets. We document that there are high-risk spillover effects in the European electricity markets because the values of the Conditional Value-at-Risk (CoVaR) are large. Also, we find that the more integrated the market, the more the systematic risk contribution of the market as indicated by ΔCoVaR. Our findings provide useful information regarding the dependence, integration, risk management, and asset pricing for the European electricity markets.
URI: https://hdl.handle.net/10356/164386
ISSN: 2352-4847
DOI: 10.1016/j.egyr.2022.02.308
Schools: School of Electrical and Electronic Engineering 
Rights: © 2022 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).
Fulltext Permission: open
Fulltext Availability: With Fulltext
Appears in Collections:EEE Journal Articles

Files in This Item:
File Description SizeFormat 
1-s2.0-S2352484722005534-main.pdf4.18 MBAdobe PDFThumbnail
View/Open

SCOPUSTM   
Citations 50

7
Updated on Apr 17, 2024

Web of ScienceTM
Citations 50

4
Updated on Oct 26, 2023

Page view(s)

80
Updated on Apr 16, 2024

Download(s)

23
Updated on Apr 16, 2024

Google ScholarTM

Check

Altmetric


Plumx

Items in DR-NTU are protected by copyright, with all rights reserved, unless otherwise indicated.