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Estimating the Volatility of Wholesale Electricity Spot Prices in the US

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  • Lester Hadsell
  • Achla Marathe
  • Hany A. Shawky

Abstract

This paper examines the volatility of wholesale electricity prices for five US markets. Using data covering the period from May 1996 to September 2001, for the California-Oregon Border, Palo Verde, Cinergy, Entergy, and Pennsylvania-New Jersey-Maryland markets, we examine the volatility of electricity wholesale prices over time and across markets. We estimate volatility using a TARCH model to study the differences among markets and the seasonal characteristics of each market. For all markets, we find strong evidence for a downward trend in the ARCH term and a significant negative asymmetric effect over the sample period. We also document important differences among the regional electricity markets not only with respect to wholesale price volatility and seasonal variations, but also with respect to asymmetric properties and persistence of volatility.

Suggested Citation

  • Lester Hadsell & Achla Marathe & Hany A. Shawky, 2004. "Estimating the Volatility of Wholesale Electricity Spot Prices in the US," The Energy Journal, , vol. 25(4), pages 23-40, October.
    • Handle: RePEc:sae:enejou:v:25:y:2004:i:4:p:23-40
    DOI: 10.5547/ISSN0195-6574-EJ-Vol25-No4-2
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    References listed on IDEAS

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    1. Nam, Kiseok & Pyun, Chong Soo & Kim, Sei-Wan, 2003. "Is asymmetric mean-reverting pattern in stock returns systematic? Evidence from Pacific-basin markets in the short-horizon," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 13(5), pages 481-502, December.
    2. Catherine D. Wolfram, 1999. "Measuring Duopoly Power in the British Electricity Spot Market," American Economic Review, American Economic Association, vol. 89(4), pages 805-826, September.
    3. Hany A. Shawky & Achla Marathe & Christopher L. Barrett, 2003. "A first look at the empirical relation between spot and futures electricity prices in the United States," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 23(10), pages 931-955, October.
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