Analyzing the impact of futures trading on spot price volatility: Evidence from the spot electricity market in France and Germany

Fotis G. Kalantzis and Nikolaos Milonas

Energy Economics, 2013, vol. 36, issue C, 454-463

Abstract: This paper examines the impact of the introduction of electricity futures on the spot-price volatility of the French (Powernext) and German (EEX) electricity markets, as well as the degree of their price correlation over the period 2002–2011. Our working hypotheses were tested based on a bivariate VECM-GARCH model. The results indicate that the introduction of futures contracts in the French electricity market, as well as the launch of the joint futures market in these countries in 2009, has decreased spot price volatility. However, this effect was not as explicit for the German market, due to data specificities. Other interesting results are: the German market dominates and leads the long run price relationship; the impact of cooling needs on demand is greater than the impact of heating needs; there is a substantial systematic pattern of electricity prices and their respective volatilities during weekdays and holidays. Overall, results are supportive of policy making at the European Commission regarding electricity market integration.

Keywords: Electricity futures market; Volatility clustering; Electricity spot markets; Spot market volatility; VECM-GARCH (search for similar items in EconPapers)
JEL-codes: G13 G14 G15 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:36:y:2013:i:c:p:454-463

DOI: 10.1016/j.eneco.2012.09.017

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