Long-term Memory in Electricity Prices: Czech Market Evidence
Krištoufek, Ladislav; Lunáčková, Petra
Year: 2013 Volume: 63 Issue: 5 Pages: 407-424
Abstract: We analyze the long-term memory properties of hourly prices of electricity in the Czech Republic between 2009 and 2012. Various statistical properties of these prices are studied, and as the dynamics of electricity prices is dominated by cycles—in particular intraday and daily—we opt for detrended fluctuation analysis, which is well suited to such specific series. We find that electricity prices are non-stationary but strongly mean-reverting, which distinguishes them from prices of other financial assets, which are usually characterized as unit root series. Such behavior is attributed to specific features of electricity, in particular its non-storability. Additionally, we argue that the rapid mean-reversion is due to the principles of electricity spot prices. These properties are shown to be stable across all the years studied.
JEL classification: C13, C22, L94
Keywords: electricity, Hurst exponent, persistence, cycles
RePEc: http://ideas.repec.org/a/fau/fauart/v63y2013i5p407-424.html
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