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A multivariate GARCH analysis of the domestic transmission of energy commodity prices and volatility: A comparison of the peak and off-peak periods in the Australian electricity spot market Discussion Paper No. 140

Worthington, Andrew C. & Higgs, Helen (2003) A multivariate GARCH analysis of the domestic transmission of energy commodity prices and volatility: A comparison of the peak and off-peak periods in the Australian electricity spot market Discussion Paper No. 140. [Working Paper] (Unpublished)

Abstract

This paper examines the transmission of spot electricity prices and price volatility among the five Australian electricity markets in the National Electricity Market (NEM): namely, New South Wales (NSW), Queensland (QLD), South Australia (SA), Snowy Mountains Hydroelectric Scheme (SNO) and Victoria (VIC). A multivariate generalised autoregressive conditional heteroskedasticity (MGARCH) model is used to identify the source and magnitude of innovations and spillovers. The results indicate the inability of the existing network of interconnectors to create a substantially integrated national electricity market and that, for the most part, the sizeable differences in peak and off-peak spot prices between most of the regions will remain, at least in the short term. However, own-volatility and cross-volatility spillovers are significant for nearly all markets, indicating the presence of strong ARCH and GARCH effects. Strong own and cross-persistent volatility are also evident in all Australian regional electricity markets. This indicates that while the limited nature of the interconnectors between the separate regional spot markets prevents full integration of these markets, shocks or innovations in particular markets still exert an influence on price volatility.

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ID Code: 373
Item Type: Working Paper
Keywords: Market integration, electricity prices, energy prices, mean and volatility spillovers, multivariate GARCH
ISSN: 1324-5910
Subjects: Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > OTHER ECONOMICS (149900)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Copyright Owner: Copyright 2003 (Please consult author)
Deposited On: 30 Aug 2004
Last Modified: 05 Jan 2011 23:23

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