Journal of Futures Markets: Volume 45, Issue 9

This paper investigates the mean, volatility, skewness, and kurtosis of price spillovers from the natural gas, coal, and CO₂ emissions markets into the German electricity market from 2010 to July 2023, segmented into three periods: pre-Russo-Ukrainian war, war-triggered price rise, and postwar adjustment. Utilizing a flexible probability model with time-varying parameters and structural dummies for different periods and days of the week and applying the Bayesian Information Criterion (BIC) for model selection, the analysis reveals: (a) significant bidirectional mean spillovers between gas and coal markets, with coal prices exerting a stronger influence on gas prices; (b) volatility spillovers from the CO₂ market into the electricity market; (c) skewness spillovers from the coal market that negatively impact electricity skewness; and (d) kurtosis spillovers from the CO₂ market. The distribution of electricity price-growth rates is characterized by extreme leptokurtosis and negative skewness, reflecting extreme price movements. These findings underscore the complex dynamics of these interconnected markets, offering valuable insights for market participants, policymakers, and risk managers in forecasting, hedging strategies, and pricing electricity derivatives during market turbulence.

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