Electricity Market Crisis in Europe and Cross Border Price Effects: A Quantile Return Connectedness Analysis

Hung Do, Rabindra Nepal, Son Duy Pham and Tooraj Jamasb
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Son Duy Pham: Finance, University of Aberdeen Business School, https://www.abdn.ac.uk/people/son.pham#about

No 8-2023, Working Papers from Copenhagen Business School, Department of Economics

Abstract: Despite the massive impacts of the COVID-19 pandemic and the Russia-Ukraine war on the European energy market, little is known about their effects on the transmission of risks between member states’ electricity markets and key electricity sources. In this paper, we first employ the quantile connectedness approach to quantify the return connectedness between eleven European electricity markets, natural gas, and carbon market, then examine the impacts of the two crises on the interconnectedness. We find a significant return interconnectedness of the system, mainly driven by the spillover effects among European electricity markets. An investigation of the connectedness across quantiles shows that the spillover effects are much stronger at the tails of conditional distribution and the natural gas and carbon markets are net recipients of return shocks across quantiles. More importantly, our results reveal opposite effects of the two crises on interconnectedness. While the COVID-19 pandemic reduces the interconnectedness, the Russia-Ukraine war intensifies the return shock transmission.

Keywords: Natural gas; European Emission Allowance; Electricity markets; COVID-19; Russia-Ukraine war; Quantile connectedness (search for similar items in EconPapers)
JEL-codes: D04 L94 Q43 (search for similar items in EconPapers)
Pages: 67 pages
Date: 2023-06-02
New Economics Papers: this item is included in nep-cis, nep-eec, nep-ene, nep-reg and nep-tra
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Related works:
Journal Article: Electricity market crisis in Europe and cross border price effects: A quantile return connectedness analysis (2024)
Working Paper: Electricity Market Crisis in Europe and Cross Border Price Effects: A Quantile Return Connectedness Analysis (2023)
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