Author(s)

Panagiotis G. Papaioannou¹, George P. Papaioannou^2,3, Akylas Stratigakos⁴, Christos Dikaiakos²

¹Applied Mathematics and Physical Sciences, National Technical University of Athens, Athens, Greece.
²Research, Technology & Development Department, Independent Power Transmission Operator (IPTO) S.A., Athens, Greece.
³Center for Research and Applications in Nonlinear Systems (CRANS), Department of Mathematics, University of Patras, Patras, Greece.
⁴Department of Electrical and Computer Engineering, University of Patras, Patras, Greece.

Liberalization of electricity markets has increasingly created the need for understanding the volatility and correlation structure between electricity, financial and energy commodity markets. This work reveals the existence of structural changes in correlation patterns among these markets and links the changes to both fundamentals and regulatory conditions prevailing in the markets, as well as the current European financial crisis. We apply a Dynamic Conditional Correlation (DCC) GARCH model to a set of market’s fundamental variables, related commodity markets and Greece’s financial market and microeconomic indexes to study their interaction. Emphasis is given on the period of severe financial crisis of the Country to understand “contagion” and volatility spillover between these markets. This approach enables us to capture the changing co-movement of assets within and between markets (financial, commodity, electricity) as market conditions change. The main results are that there is strong evidence of volatility spillover (or co-volatility) between financial and commodity market, while the Greek electricity market seems to be almost “isolated” from these two markets.

Dynamic Conditional Correlation, Garch, Electricity & Financial Markets

Papaioannou, P. , Papaioannou, G. , Stratigakos, A. and Dikaiakos, C. (2017) Dynamic Conditional Correlation between Electricity, Energy (Commodity) and Financial Markets during the Financial Crisis in Greece. Journal of Mathematical Finance, 7, 990-1033. doi: 10.4236/jmf.2017.74055.