Volatility Spillovers in Electricity Markets: Evidence from the United States

• Main Authors: Themistoclis Pantos, Stathis Polyzos, Aggelos Armenatzoglou, Ilias Kampouris
• Format: Article
• Language: English
• Published: EconJournals 2019-06-01
• Series: International Journal of Energy Economics and Policy
• Online Access: https://www.econjournals.com/index.php/ijeep/article/view/7563

<p>This paper examines the degree of market integration, as observed by measuring volatility spillovers, in selected wholesale electricity spot markets from<br />United States. We choose markets located at interconnected and non-interconnected areas. We use a Multivariate GARCH framework, which allows<br />us to model time varying correlations and to conclude whether the markets show evidence of interdependency. We estimate the variance-covariance<br />and correlation structure, in order to observe the evolution of interactions among markets, accounting for asymmetric effects. We find evidence of<br />significant correlations between interconnected markets, which are mainly due to electricity transmission, since the observed correlations are above<br />0.5, but our results show that the desired level of integration has not been accomplished yet. Nevertheless, full integration is not an objective target,<br />unless new technologies offer a boost towards that direction. Our results suggest that we should move towards a more integrated market, through<br />legislation reforms and investment in infrastructure, which could increase competition and could lead to capital savings through lower electricity prices.<br />The unique selection of the markets under examination and the 4-variate BEKK model for electricity markets are special characteristics of this paper.</p><p><strong>Keywords</strong>: Energy Markets, Electricity Markets, Market Integration, BEKK, Asymmetric Dynamic Conditional Correlation</p><p><strong>JEL Claasifications:</strong> Q43, Q48, O21, C44</p><p>DOI: <a href="https://doi.org/10.32479/ijeep.7563">https://doi.org/10.32479/ijeep.7563</a></p>