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Tail Risk Connectedness in the Australian National Electricity Markets: The Impact of Rare Events

Author

Listed:
  • Duy Pham, Son

    (University of Aberdeen Business School, Dunbar Street, Aberdeen, UK)

  • Do, Hung Xuan

    (School of Economics and Finance, Massey University, New Zealand)

  • Nepal, Rabindra

    (Faculty of Business and Law, School of Business, University of Wollongong, Australia)

  • Jamasb, Tooraj

    (Department of Economics, Copenhagen Business School)

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.

Suggested Citation

  • Duy Pham, Son & Do, Hung Xuan & Nepal, Rabindra & Jamasb, Tooraj, 2024. "Tail Risk Connectedness in the Australian National Electricity Markets: The Impact of Rare Events," Working Papers 9-2024, Copenhagen Business School, Department of Economics.
    • Handle: RePEc:hhs:cbsnow:2024_009
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    More about this item

    Keywords

    Electricity markets; Tail risk; TVP-VAR connectedness; Australia; CAViaR;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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