Policy uncertainty and volatility spillovers in European electricity markets: Implications for market dynamics and innovation

Kyriaki Tselika, Maria Tselika and Elias Demetriades ()
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Kyriaki Tselika: Norwegian School of Economics and Business Administration - Norwegian School of Economics and Business Administration, SINTEF Energy Research
Maria Tselika: Rennes SB - Rennes School of Business
Elias Demetriades: Audencia Business School

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Abstract: In the evolving European energy landscape, it is essential to deepen our understanding of the interplay between electricity markets, volatility, and policy uncertainty. This paper investigates volatility spillovers across 11 European electricity markets and examines how three distinct policy uncertainty indices – economic, energy, and environmental – affect these spillovers. We employ three advanced econometric approaches to assess how the interconnected European market receives and transmits volatility. Furthermore, we analyze the influence of policy uncertainty on volatility transmission across markets using both linear and quantile regression models, allowing us to capture dynamics across different time horizons and market conditions. Our findings reveal significant fluctuations in volatility spillovers, both in the short-term and long-term market. An increase in all three policy uncertainty indices reduce short-term spillovers while energy policy uncertainty increases long-term volatility. This effect highlights the complex relationship between policy uncertainty and electricity market dynamics in Europe. The study provides crucial insights for policymakers and market participants, highlighting the need for strategic risk management and coordinated policy frameworks to mitigate the impacts of volatility and enhance market stability. Lastly, this research contributes to a deeper understanding of how policy uncertainty shapes the evolving European electricity markets.

Keywords: Policy uncertainty; Econometric methods; Market integration; Energy transition; Technological development (search for similar items in EconPapers)
Date: 2025-11
New Economics Papers: this item is included in nep-ene
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Published in Journal of Commodity Markets, 2025, 40, pp.100525. ⟨10.1016/j.jcomm.2025.100525⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05365937

DOI: 10.1016/j.jcomm.2025.100525

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