Scandinavian Working Papers in Economics
Working Papers,
Copenhagen Business School, Department of Economics
No 9-2024: Tail Risk Connectedness in the Australian National Electricity Markets: The Impact of Rare Events
Son Duy Pham (), Hung Xuan Do (), Rabindra Nepal () and Tooraj Jamasb ()
Additional contact information
Son Duy Pham: University of Aberdeen Business School, Dunbar Street, Aberdeen, UK
Hung Xuan Do: School of Economics and Finance, Massey University, New Zealand
Rabindra Nepal: Faculty of Business and Law, School of Business, University of Wollongong, Australia
Tooraj Jamasb: Department of Economics, Copenhagen Business School, Postal: Copenhagen Business School, Department of Economics, Porcelaenshaven 16 A. 1. floor, DK-2000 Frederiksberg, Denmark
Abstract: The tail risks can exhibit different and important features than average measures of risk in interconnected electricity markets. This paper examines the interconnectedness of tail risks within the regionally interconnected Australian National Electricity Market. We use the Conditional Autoregressive Value-at-Risk (CAViaR) and time-varying parameter vector autoregression (TVP-VAR) connectedness approach. Analysing historical data between 01 January 2006 and 04 February 2024. The results show significant levels of connectedness for both negative and positive tail risks, highlighting the dynamic and interdependent nature of these markets. Notably, we identify asymmetries in the transmission of tail risks and their key drivers, including oil market volatility and global geopolitical risks. Our findings show that some regions play a pivotal role in the risk dynamics across the regions of the network and the influence of energy source diversity on risk profiles. The study underscores the complexity of managing the expected increase in tail risks in interconnected electricity markets, emphasizing the need for adaptive, forward-thinking strategies tailored to evolving global and local conditions.
Keywords: Electricity markets; Tail risk; TVP-VAR connectedness; Australia; CAViaR
Language: English
75 pages, July 2, 2024
Full text files
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