A Study on the Nature of Complexity in the Spanish Electricity Market Using a Comprehensive Methodological Framework

Lucía Inglada-Pérez () and Sandra González y Gil
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Lucía Inglada-Pérez: Department of Statistics and Operational Research, Faculty of Medicine, Complutense University, Plaza Ramón y Cajal, s/n Ciudad Universitaria, 28040 Madrid, Spain
Sandra González y Gil: Department of Statistics and Operational Research, Complutense University, Plaza Ramón y Cajal, s/n Ciudad Universitaria, 28040 Madrid, Spain

Mathematics, 2024, vol. 12, issue 6, 1-21

Abstract: The existence of chaos is particularly relevant, as the identification of a chaotic behavior in a time series could lead to reliable short-term forecasting. This paper evaluates the existence of nonlinearity and chaos in the underlying process of the spot prices of the Spanish electricity market. To this end, we used daily data spanning from 1 January 2013, to 31 March 2021 and we applied a comprehensive framework that encompassed a wide range of techniques. Nonlinearity was analyzed using the BDS method, while the existence of a chaotic structure was studied through Lyapunov exponents, recurrence plots, and quantitative recurrence analysis. While nonlinearity was detected in the underlying process, conclusive evidence supporting chaos was not found. In addition, the generalized autoregressive conditional heteroscedastic (GARCH) model accounts for part of the nonlinear structure that is unveiled in the electricity market. These findings hold substantial value for electricity market forecasters, traders, producers, and market regulators.

Keywords: nonlinearity; chaos; time series forecasting; Lyapunov exponent; artificial neural networks; recurrence plot; GARCH model; electricity market (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2024
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