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Analyzing the impact of futures trading on spot price volatility: Evidence from the spot electricity market in France and Germany

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  • Kalantzis, Fotis G.
  • Milonas, Nikolaos T.

Abstract

This paper examines the impact of the introduction of electricity futures on the spot-price volatility of the French (Powernext) and German (EEX) electricity markets, as well as the degree of their price correlation over the period 2002–2011. Our working hypotheses were tested based on a bivariate VECM-GARCH model. The results indicate that the introduction of futures contracts in the French electricity market, as well as the launch of the joint futures market in these countries in 2009, has decreased spot price volatility. However, this effect was not as explicit for the German market, due to data specificities. Other interesting results are: the German market dominates and leads the long run price relationship; the impact of cooling needs on demand is greater than the impact of heating needs; there is a substantial systematic pattern of electricity prices and their respective volatilities during weekdays and holidays. Overall, results are supportive of policy making at the European Commission regarding electricity market integration.

Suggested Citation

  • Kalantzis, Fotis G. & Milonas, Nikolaos T., 2013. "Analyzing the impact of futures trading on spot price volatility: Evidence from the spot electricity market in France and Germany," Energy Economics, Elsevier, vol. 36(C), pages 454-463.
    • Handle: RePEc:eee:eneeco:v:36:y:2013:i:c:p:454-463
    DOI: 10.1016/j.eneco.2012.09.017
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    Cited by:

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    2. Uddin, Gazi Salah & Tang, Ou & Sahamkhadam, Maziar & Taghizadeh-Hesary, Farhad & Yahya, Muhammad & Cerin, Pontus & Rehme, Jakob, 2021. "Analysis of Forecasting Models in an Electricity Market under Volatility," ADBI Working Papers 1212, Asian Development Bank Institute.
    3. Sinha, Pankaj & Mathur, Kritika, 2016. "Empirical Analysis of Developments in the Day Ahead Electricity Markets in India," MPRA Paper 72969, University Library of Munich, Germany.
    4. Sirin, Selahattin Murat & Camadan, Ercument & Erten, Ibrahim Etem & Zhang, Alex Hongliang, 2023. "Market failure or politics? Understanding the motives behind regulatory actions to address surging electricity prices," Energy Policy, Elsevier, vol. 180(C).
    5. Mayer, Klaus & Trück, Stefan, 2018. "Electricity markets around the world," Journal of Commodity Markets, Elsevier, vol. 9(C), pages 77-100.
    6. Chai, Shanglei & Yang, Xiaoli & Zhang, Zhen & Abedin, Mohammad Zoynul & Lucey, Brian, 2022. "Regional imbalances of market efficiency in China’s pilot emission trading schemes (ETS): A multifractal perspective," Research in International Business and Finance, Elsevier, vol. 63(C).
    7. Chikashi Tsuji, 2016. "Did the expectations channel work? Evidence from quantitative easing in Japan, 2001–06," Cogent Economics & Finance, Taylor & Francis Journals, vol. 4(1), pages 1210996-121, December.
    8. Haxhimusa, Adhurim, 2018. "The Effects of German Wind and Solar Electricity on French Spot Price Volatility: An Empirical Investigation," Department of Economics Working Paper Series 258, WU Vienna University of Economics and Business.
    9. Tsai, I-Chun, 2024. "Fossil energy risk exposure of the UK electricity system: The moderating role of electricity generation mix and energy source," Energy Policy, Elsevier, vol. 188(C).
    10. N. Gülpınar & F. Oliveira, 2014. "Analysis of relationship between forward and spot markets in oligopolies under demand and cost uncertainties," Computational Management Science, Springer, vol. 11(3), pages 267-283, July.
    11. Tiantian Liu & Xie He & Tadahiro Nakajima & Shigeyuki Hamori, 2020. "Influence of Fluctuations in Fossil Fuel Commodities on Electricity Markets: Evidence from Spot and Futures Markets in Europe," Energies, MDPI, vol. 13(8), pages 1-20, April.
    12. Rintamäki, Tuomas & Siddiqui, Afzal S. & Salo, Ahti, 2017. "Does renewable energy generation decrease the volatility of electricity prices? An analysis of Denmark and Germany," Energy Economics, Elsevier, vol. 62(C), pages 270-282.

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    More about this item

    Keywords

    Electricity futures market; Volatility clustering; Electricity spot markets; Spot market volatility; VECM-GARCH;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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