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Cross-Commodity News Transmission and Volatility Spillovers in the German Energy Markets

Green, Rikard LU ; Larsson, Karl LU ; Lunina, Veronika LU and Nilsson, Birger LU (2016) In Working Paper / Department of Economics, School of Economics and Management, Lund University
Abstract
This study investigates the dynamic interrelations in the volatilities and correlations of the returns on the German energy forward markets. We focus on the volatility spillovers to electric power from news in the prices of gas, coal, and carbon emission allowances. We discuss the relationship between our results and the fundamental developments in the energy markets during the sample period from 2008 to 2013, particularly the changes over time in spark and dark spreads and in the actual generation mix. We use a general VAR-BEKK model and the volatility impulse response function methodology to analyze and evaluate the spillover effects. Special attention is paid to selecting an appropriate econometric volatility model. Our results show... (More)
This study investigates the dynamic interrelations in the volatilities and correlations of the returns on the German energy forward markets. We focus on the volatility spillovers to electric power from news in the prices of gas, coal, and carbon emission allowances. We discuss the relationship between our results and the fundamental developments in the energy markets during the sample period from 2008 to 2013, particularly the changes over time in spark and dark spreads and in the actual generation mix. We use a general VAR-BEKK model and the volatility impulse response function methodology to analyze and evaluate the spillover effects. Special attention is paid to selecting an appropriate econometric volatility model. Our results show that spillover effects display significant time variation. Spillovers from coal to power are significant throughout our sample, while spillover from gas decreased during the most recent period. In contrast, we find that spillovers from carbon have increased in strength over time. These results are consistent with the developments in these markets during the sample period. (Less)
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author
organization
publishing date
type
Working Paper
publication status
published
subject
keywords
energy forward markets, time-varying volatility spillovers, volatility impulse response function, skew-Student asymmetric BEKK
in
Working Paper / Department of Economics, School of Economics and Management, Lund University
issue
2
pages
51 pages
publisher
Department of Economics, Lund Universtiy
language
English
LU publication?
yes
id
0a947b58-3719-4c33-8e0c-4dae775ae371 (old id 8595194)
alternative location
http://swopec.hhs.se/lunewp/abs/lunewp2016_002.htm
date added to LUP
2016-02-02 13:16:29
date last changed
2016-08-31 15:19:50
@misc{0a947b58-3719-4c33-8e0c-4dae775ae371,
  abstract     = {This study investigates the dynamic interrelations in the volatilities and correlations of the returns on the German energy forward markets. We focus on the volatility spillovers to electric power from news in the prices of gas, coal, and carbon emission allowances. We discuss the relationship between our results and the fundamental developments in the energy markets during the sample period from 2008 to 2013, particularly the changes over time in spark and dark spreads and in the actual generation mix. We use a general VAR-BEKK model and the volatility impulse response function methodology to analyze and evaluate the spillover effects. Special attention is paid to selecting an appropriate econometric volatility model. Our results show that spillover effects display significant time variation. Spillovers from coal to power are significant throughout our sample, while spillover from gas decreased during the most recent period. In contrast, we find that spillovers from carbon have increased in strength over time. These results are consistent with the developments in these markets during the sample period.},
  author       = {Green, Rikard and Larsson, Karl and Lunina, Veronika and Nilsson, Birger},
  keyword      = {energy forward markets,time-varying volatility spillovers,volatility impulse response function,skew-Student asymmetric BEKK},
  language     = {eng},
  note         = {Working Paper},
  number       = {2},
  pages        = {51},
  publisher    = {Department of Economics, Lund Universtiy},
  series       = {Working Paper / Department of Economics, School of Economics and Management, Lund University},
  title        = {Cross-Commodity News Transmission and Volatility Spillovers in the German Energy Markets},
  year         = {2016},
}