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Modeling the daily electricity price volatility with realized measures

Michael Frömmel, Xing Han and Stepan Kratochvil

Energy Economics, 2014, vol. 44, issue C, 492-502

Abstract: We propose using Realized GARCH-type models to estimate the daily price volatility in the EPEX power markets. The model specifications extract the volatility-related information from realized measures, which improves the in-sample fit of the data. More importantly, evidence on the out-of-sample predictability reinforces the value of the specifications, as the forecast quality is improved over the benchmark EGARCH model under eight conventional criteria. In particular, we show that the benefit of including intraday range as a realized measure is more substantial than realized variance. All the key findings are robust under rolling-window and recursive estimation schemes, Gaussian and skewed t-distribution assumptions on the innovation process, and alternative specifications on the predictable price component.

Keywords: Volatility forecasting; Intraday range; Realized GARCH; Electricity (search for similar items in EconPapers)
JEL-codes: C13 C52 G15 G17 Q41 Q47 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (25)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:44:y:2014:i:c:p:492-502

DOI: 10.1016/j.eneco.2014.03.001

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