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Cross-Commodity News Transmission and Volatility Spillovers in the German Energy Markets

Rikard Green (), Karl Larsson (), Veronika Lunina () and Birger Nilsson ()
Additional contact information
Rikard Green: E.ON Sverige AB, Postal: S-20509 Malmö, Sweden
Karl Larsson: Statistics Sweden, Postal: S-70189 Örebro, Sweden, http://works.bepress.com/karl_larsson/
Veronika Lunina: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden, https://sites.google.com/site/nikalunina/
Birger Nilsson: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden, https://sites.google.com/site/birgermain/home

No 2016:2, Working Papers from Lund University, Department of Economics

Abstract: This study investigates the dynamic interrelations in the volatilities and correlations of the returns on the German energy forward markets. We focus on the volatility spillovers to electric power from news in the prices of gas, coal, and carbon emission allowances. We discuss the relationship between our results and the fundamental developments in the energy markets during the sample period from 2008 to 2013, particularly the changes over time in spark and dark spreads and in the actual generation mix. We use a general VAR-BEKK model and the volatility impulse response function methodology to analyze and evaluate the spillover effects. Special attention is paid to selecting an appropriate econometric volatility model. Our results show that spillover effects display significant time variation. Spillovers from coal to power are significant throughout our sample, while spillover from gas decreased during the most recent period. In contrast, we find that spillovers from carbon have increased in strength over time. These results are consistent with the developments in these markets during the sample period.

Keywords: energy forward markets; time-varying volatility spillovers; volatility impulse response function; skew-Student asymmetric BEKK (search for similar items in EconPapers)
JEL-codes: C32 C58 G10 Q41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene and nep-reg
Date: 2016-01-13, Revised 2016-08-27
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