Price Volatility in Commodity Markets with Restricted Participation

Andreas Knaut and Martin Paschmann
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Martin Paschmann: Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)

No 2017-2, EWI Working Papers from Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)

Abstract: Analyzing commodity market dynamics, we observe that price volatility increases with reduced contract duration. In this paper, we derive a theoretical model depicting the price formation in two markets with altering product granularity. Supplemented by empirical evidence from German electricity markets for hourly and quarter-hourly products, we find that the high price volatility is triggered by restricted participation of suppliers in the market for quarter-hourly products as well as by sub-hourly variations of renewable supply and demand. Welfare implications reveal efficiency losses of EUR 96 million in 2015 that may be reduced if markets are coupled.

Keywords: Commodity Markets; Price Volatility; Sequential Market Organization; Short-Term Market Dynamics; Electricity Market Interaction; Short-Term Price Formation (search for similar items in EconPapers)
JEL-codes: C13 C51 D44 D47 L94 Q21 Q41 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2017-01-19
New Economics Papers: this item is included in nep-cta and nep-ene
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:ewikln:2017_002

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