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

摘要

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.