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The Relationship Between Energy Spot And Futures Prices: Evidence From The Australian Electricity Market

Worthington, Andrew C. & Higgs, Helen (2004) The Relationship Between Energy Spot And Futures Prices: Evidence From The Australian Electricity Market. ICFAI Journal of Applied Economics, 3(4), pp. 65-82.

Abstract

This paper examines the relationship between futures and spot electricity prices for two of the Australian electricity regions in the National Electricity Market (NEM): namely, New South Wales and Victoria. A generalised autoregressive conditional heteroskedasticity (GARCH) model is used to identify the magnitude and significance of mean and volatility spillovers from the futures market to the spot market. The results indicate the presence of positive mean spillovers in the NSW market for peak and off-peak (base load) futures contracts and mean spillovers for the off-peak Victorian futures market. The large number of significant innovation and volatility spillovers between the futures and spot markets indicates the presence of strong ARCH and GARCH effects. Contrary to evidence from studies in North American electricity markets, the results also indicate that Australian electricity spot and futures prices are stationary.

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ID Code: 2326
Item Type: Journal Article
Additional URLs:
Keywords: Electricity futures, spot prices, GARCH, volatility
Subjects: Australian and New Zealand Standard Research Classification > ECONOMICS (140000)
Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000) > BANKING FINANCE AND INVESTMENT (150200) > Banking Finance and Investment not elsewhere classified (150299)
Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > APPLIED ECONOMICS (140200) > Environment and Resource Economics (140205)
Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > ECONOMETRICS (140300) > Economic Models and Forecasting (140303)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Copyright Owner: Copyright 2004 Icfai University Press
Copyright Statement: Reproduced in accordance with the copyright policy of the publisher.
Deposited On: 10 Nov 2005
Last Modified: 05 Jan 2011 23:25

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