Abstract
The Rescaled Range Analysis method (R/S Analysis method) is applied to analyze the PJM electricity derivatives market through calculating V statistics and Hurst Exponent of three types of products. The study finds that there is no obvious average cycle in the PJM electricity derivatives market. The price fluctuation of various products is not a non-random walk process but has a long-term memory. It shows that the PJM electricity derivatives market is not completely effective. The study also finds that PJM electricity option market is more effective than PJM electricity futures market.
Highlights
With the development of the electricity spot market in China, constructing a corresponding electricity derivatives market has gradually been put on the agenda in order to adapt to the non-storage characteristic of electricity and prevent the sharp fluctuation of electricity price
In terms of the theory of financial market effectiveness, Fama[1] and Peter[2] proposed the theories of Efficient Market Hypothesis (EMH) and Fractal Market Hypothesis (FMH) respectively
The former considers that the market whose price fully reflects all available information is an effective market, and the market efficiency can be divided into weak-effective, medium-strong-effective and strong-effective according to the types of available information, The latter considers that a stable market has a typed structure, and investors' behavior is influenced by the degree of information acceptance and the investment time scale
Summary
With the development of the electricity spot market in China, constructing a corresponding electricity derivatives market has gradually been put on the agenda in order to adapt to the non-storage characteristic of electricity and prevent the sharp fluctuation of electricity price. In terms of the theory of financial market effectiveness, Fama[1] and Peter[2] proposed the theories of Efficient Market Hypothesis (EMH) and Fractal Market Hypothesis (FMH) respectively The former considers that the market whose price fully reflects all available information is an effective market, and the market efficiency can be divided into weak-effective, medium-strong-effective and strong-effective according to the types of available information, The latter considers that a stable market has a typed structure, and investors' behavior is influenced by the degree of information acceptance and the investment time scale. In the research of futures market validity verification, Some authors use sequential test and run-length test to study metal futures and soybean futures respectively[3,4]. It finds that futures price changes in a random walk process, and accepts the hypothesis that futures exchanges are weak-effective. He proposed a classical method for calculating this parameter: R/S analysis method
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