Realized volatility and jump testing in the Japanese electricity spot market

Aitor Ciarreta (), Peru Muniain () and Ainhoa Zarraga
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Aitor Ciarreta: University of the Basque Country, UPV/EHU
Peru Muniain: University of the Basque Country, UPV/EHU

Empirical Economics, 2020, vol. 58, issue 3, No 10, 1143-1166

Abstract: Abstract The analysis of price volatility in electricity markets is increasingly significant for market participants. Realized measures have proved to be a useful tool. In this paper, we analyze realized volatility calculated from half-hour electricity prices on the Japanese spot market for the period from April 2005 to December 2015. Our interest stems from the fact that Japan is an isolated country with an electricity market in the process of being deregulated. We apply six alternative jump tests available in the literature to decompose total realized variation into jump and continuous components. We find large differences from one test to another in the number of jump-days identified arising from the nature of the data and the characteristics of the tests. We then estimate several heterogeneous autoregressive models for total and decomposed realized volatility and also consider GARCH innovations. Our results show high persistence of volatility and significant jumps. Finally, we assess the performance and forecasting ability of the models using in-sample and out-of-sample criteria. The model selected with both types of criteria includes the jumps obtained using the Jiang and Oomen (J Econom 144:352–370, 2008) jump test as regressors together with lagged total variation and GARCH innovations. Our results are significant in helping participants in the Japanese electricity market to take optimal decisions based on price characteristics.

Keywords: Realized volatility; Jump tests; Heterogeneous autoregressive models; Electricity markets; GARCH (search for similar items in EconPapers)
JEL-codes: C14 C53 Q47 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s00181-018-1577-6

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