Abstract
This study investigates the dynamic interrelations in the volatilities and correlations of the returns on the German energy forward markets. We focus on the volatility spillovers to electric power from news in the prices of gas, coal, and carbon emission allowances. We discuss the relationship between our results and the fundamental developments in the energy markets during the sample period from 2008 to 2013, particularly the changes over time in spark and dark spreads and in the actual generation mix. We use a general VAR-BEKK model and a variance impulse-response function to analyze and evaluate the spillover effects. Special attention is paid to selecting an appropriate econometric volatility model. Our results show that spillover effects display significant time variation. Spillovers from coal to power are significant throughout our sample, while spillover from gas decreased during the most recent period. In contrast, we find that spillovers from carbon have increased in strength over time. These results are consistent with the developments in these markets during the sample period.
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