Analyzing Shock Transmission and Spillover Effect in the Day-Ahead and Intraday Markets: Key Implications for Price Forecasting

Simona Vasilica Oprea and Adela Bâra ()
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Simona Vasilica Oprea: Bucharest University of Economic Studies
Adela Bâra: Bucharest University of Economic Studies

Journal of the Knowledge Economy, 2025, vol. 16, issue 5, No 57, 17226-17265

Abstract: Abstract The increasing capacity in renewables (RES) and batteries in the Romanian power system stirred discussions on increasing interdependency between day-ahead market (DAM) and intraday continuous (IDC) market. In this paper, we analyze hourly market-cleared prices and selling and buying quantities in the DAM and IDC over 3 months (4th of June to 11th of September 2024) to verify the connectedness between prices of the two markets, possible shock transmission and spillover effects. We employ generalized autoregressive conditional heteroskedasticity (GARCH) models to examine volatilities. The Diebold–Yilmaz spillover index is 95.69%, demonstrating an extremely high degree of volatility interdependence. This suggests that nearly all volatility in both markets is driven by cross-market shocks. Price shocks in the DAM initially raise IDC prices by 0.3 units, with this effect fading after 8 to 10 periods. Conversely, IDC shocks similarly raise DAM prices by 0.3 units, but both effects are temporary, indicating a short-term dynamic link between the two markets. Moreover, numerical results from the BEKK-GARCH model highlight significant volatility spillovers between Price_DAM and Price_IDC, with stronger cross-market volatility effects and evidence of interdependence, particularly from Price_IDC to Price_DAM. The findings suggest implications for market players to create bidding strategies and decision-makers to mitigate price volatility connectedness in DAM and IDC. Furthermore, our findings underscore the critical role of knowledge creation and diffusion in understanding the interconnected dynamics of electricity markets. By leveraging advanced econometric tools and spillover analysis, our research contributes to the body of knowledge essential for innovation in market strategies and decision-making processes.

Keywords: Day-ahead market; Intraday market; Price volatility; Spillover effect; Shock transmission; Econometrics (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s13132-025-02603-1

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