Electricity is a non-storable commodity frequently traded in complex markets characterized by oligopolistic structures and uniform-price auctions. These particularities confer to electricity prices idiosyncratic patterns not addressed by the usual commodity pricing literature. This paper allows for oligopoly, vertical integration and uniform-price auction and derives a linear equilibrium relationship between spot prices and state variables affecting firms' costs and demand under usual functional simplifications. It applies a two-factor forward pricing model over the equilibrium spot price process, and shows that forward prices can be positively affected by spot market power. Thus, hedge prices may be affected by market power as it appears in the spot market.
This paper examines how regulatory interventions can affect the market
risk of electricity utilities and telecom carriers traded in the Brazilian
stock market (BOVESPA). Our article uses a bivariate Generalized
AutoRegressive Conditional Heteroskedasticity (GARCH - BEKK) model to
analyze the impact of two relevant and surprising measures taken by the
correspondent Brazilian regulatory authorities in 2012 (one in each sector)
on both markets’ volatilities and covariance. We also adopt the volatility
impulse response function (VIRF) developed by Hafner & Herwartz (2006)
to estimate their persistence. On the one hand, the results indicate that
the effects of the telecommunications’ regulatory intervention are
negligible but, on the other hand, the impact of the electricity's
regulatory measure is significant, long-lasting and contagious.
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