Volatility and Dispersion of Hourly Electricity Contracts on the German Continuous Intraday Market

Intraday electricity trading on the continuous intraday market of EPEX SPOT is particularly well suited for the rebalancing of energy production. We analyzed the volatility and dispersion of individual hourly contracts, taking into account the particularities of the market, due to which the standard volatility measure from financial time series cannot be applied. We used and analyzed five measures for price fluctuations, which turned out to be similarly well suited for electricity contracts, with small differences. We then identified fundamental drivers of price fluctuations: the relative share of wind in the overall mix increased dispersion. In addition, price dispersion was positively correlated with the traded volume as well as the absolute difference between the day-ahead auction price and the volume-weighted intraday price. We furthermore analyzed the timely structure of price fluctuations to identify forecast indicators for a contract’s peak trading hour before maturity, finding that trading-related variables are more important to forecast price fluctuations than fundamental factors. With lagged realizations and additional external drivers, forecast regressions reached an adjusted R2 of 0.479 for volatility and around 0.3 for the dispersion measures.

How Do Shocks Arise and Spread Across Stock Markets? A Microstructure Perspective

We study intraday, market-wide shocks to stock prices, market liquidity, and trading activity on international stock markets and assess the relevance of recent theories on “liquidity dry-ups” in explaining such shocks. Market-wide price shocks are prevalent and large, with rapid spillovers across markets. However, price shocks are predominantly driven by information; they do not revert and are often associated with macroeconomic news. Furthermore, liquidity shocks are typically isolated and transitory. Overall, we find little evidence for liquidity effects fomenting price shocks or non-fundamental contagion, nor for alternative explanations. Market-wide liquidity dry-ups are thus of little concern to international investors. This paper was accepted by Karl Diether, finance.

Intraday imbalance optimization: incentives and impact of strategic intraday bidding behavior

Intraday markets are crucial to balance supply and demand in the very short-term, up to delivery. They are often designed as continuous auctions with a pay-as-bid pricing mechanism. While several studies assess trading strategies to balance different types of portfolios, they normally do not consider the incentives of the imbalance prices for portfolio management. This paper analyzes a strategy of taking positions in the German intraday market based on expected imbalance prices and examines its impact on system stability. Using a logistic regression model, it is possible to accurately predict the direction of the overall system balance and to apply a profitable trading strategy. For a period from 01/07/2017 to 30/06/2019, the strategy outperforms a simple approach by EUR 47 000 per MW. However, this behavior would predominantly not have been system supportive due to biased imbalance price incentives. These are asymmetric price spreads and insufficiently low imbalance prices compared to intraday prices. An efficient intraday price constraint would partly solve the problem. The overall share of system supportive imbalance positions would raise by ten percentage points. In situations with high system wide imbalances, up to three-quarters of the positions would stabilize the system. These findings are important for regulation in Germany and other countries with a single imbalance pricing as they provide an indication for crucial points of the imbalance pricing rules to incite appropriate market behavior.