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Volatility Spillovers in Electricity Markets: Evidence from the United States

Themistoclis Pantos, Stathis Polyzos, Aggelos Armenatzoglou and Ilias Kampouris
Additional contact information
Themistoclis Pantos: College of Business, Zayed University, P.O. Box 144534, Abu Dhabi, United Arab Emirates,
Stathis Polyzos: Department of Business Administration, Business School, University of the Aegean, 8 Michalon Str, Chios, 82100, Greece.
Aggelos Armenatzoglou: Department of Business Administration, Business School, University of the Aegean, 8 Michalon Str, Chios, 82100, Greece.
Ilias Kampouris: Department of Business Administration, Business School, University of the Aegean, 8 Michalon Str, Chios, 82100, Greece.

International Journal of Energy Economics and Policy, 2019, vol. 9, issue 4, 131-143

Abstract: This paper examines the degree of market integration, as observed by measuring volatility spillovers, in selected wholesale electricity spot markets from United States. We choose markets located at interconnected and non-interconnected areas. We use a Multivariate GARCH framework, which allowsus to model time varying correlations and to conclude whether the markets show evidence of interdependency. We estimate the variance-covarianceand correlation structure, in order to observe the evolution of interactions among markets, accounting for asymmetric effects. We find evidence ofsignificant correlations between interconnected markets, which are mainly due to electricity transmission, since the observed correlations are above0.5, but our results show that the desired level of integration has not been accomplished yet. Nevertheless, full integration is not an objective target,unless new technologies offer a boost towards that direction. Our results suggest that we should move towards a more integrated market, throughlegislation reforms and investment in infrastructure, which could increase competition and could lead to capital savings through lower electricity prices.The unique selection of the markets under examination and the 4-variate BEKK model for electricity markets are special characteristics of this paper.

Keywords: Energy Markets; Electricity Markets; Market Integration; BEKK; Asymmetric Dynamic Conditional Correlation (search for similar items in EconPapers)
JEL-codes: Q43 Q48 O21 C44 (search for similar items in EconPapers)
Date: 2019
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