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A volatility spillover analysis with realized semi(co)variances in Australian electricity markets

2022; Elsevier BV; Volume: 111; Linguagem: Inglês

10.1016/j.eneco.2022.106076

1873-6181

Evelyn Chanatásig-Niza, Aitor Ciarreta, Ainhoa Zarraga,

Monetary Policy and Economic Impact

Volatility spillovers are a characteristic of interconnected electricity markets. We use high-frequency prices to analyze the transmission of volatility across five Australian regional electricity markets. We propose several models: The first includes only realized variances; the second adds realized covariances; the last two include positive and negative realized semi(co)variances, separately, obtained from the decomposition of the realized covariance matrix into components based on the sign of the underlying returns. We carry out the analysis for both static and dynamic frameworks and relate the behavior of spillovers to major events and policies affecting the markets. Results show that ignoring covariances results in spillovers being underestimated and highlight the importance of the role of semi(co)variances in detecting asymmetric spillovers. Finally, we discuss implications for short-run market participants and long-term planning by regulators.