TESTING FOR WEEKLY SEASONAL UNIT ROOTS IN DAILY ELECTRICITY DEMAND: EVIDENCE FROM DEREGULATED MARKETS

This paper analyses the nature of the weekly seasonal component in daily observations for the electricity demand series from several deregulated markets. We present and use the extension of the seasonal unit roots test of Hylleberg et al (1990) to the weekly seasonality case to formally determine whether the seasonal component of each variable exhibits stochastic non-stationarity. Daily demand series are taken from the Spanish, Argentine and Victoria State (Australia) Electricity Wholesale Markets. We find that only in the case of the Australian electricity demand there is evidence of unit roots, so the usual differentiating procedure employed in conventional time series models or regression approaches could imply a mis-specification. Este trabajo examina la naturaleza del componente estacional semanal presente en las observaciones diarias de la demanda de electricidad de distintos mercados liberalizados. Se presenta y se utiliza la extensión del contraste de raíces unitarias estacionales de Hylleberg et al. (1990) para el caso de estacionalidad semanal en datos de frecuencia diaria, con la finalidad de determinar formalmente si el componente estacional de cada serie muestra o no comportamientos no-estacionarios. Las series de demanda se han obtenido de los mercados mayoristas de electricidad de Argentina, España y del estado de Victoria (Australia). La evidencia muestra que sólo en el caso de Victoria parecen existir raíces unitarias, por lo que el procedimiento habitual de diferenciación en la metodología de series temporales o de regresión implicaría la incorrecta especificación del auténtico proceso subyacente.Demanda eléctrica, contraste HEGY, raíces unitarias estacionales. Electric power, HEGY test, seasonal unit roots.

- EVALUATION OF THE FIXING TRADING SYSTEM IN THE SPANISH MARKET

In 1998 the Fixing trading system was implemented in the Spanish Stock Market. It is considered an alternative to the traditional system of continuous negotiation, applicable to those stocks that have a series of basic characteristics in common. It represents an important innovation, the fundamental purpose of which is to reduce the volatility of stocks and thus improve their liquidity. The main motive of this study is to verify whether the improvements that the advocates of the new trading system have been predicting have actually taken place, as we believe that any innovation that is introduced into the market should be subjected to empirical evaluation. To do so, the effect that this innovation has had on the indicators of liquidity, returns and volatility of the stocks involved is examined, using parametric and nonparametric tests and employing a methodology based on the technique of the event study. We concluded that the evidence observed seems to contradict the very expectations that motivated the imposition of the new negotiating system, since a significant worsening wasobserved in liquidity and returns, whereas, on the other hand, no apparent decrease is observed in volatility. Durante 1998 se implantó en el mercado español el sistema de contratación de valores conprecios únicos en cada periodo de ajuste, más conocido como sistema de negociación fixing.Este sistema representa una fórmula alternativa al sistema tradicional de negociación continua,aplicable a aquellos valores que reúnen una serie de determinadas características. A su vez,constituye una importante innovación cuya finalidad es, fundamentalmente, reducir la volatilidadde los títulos y mejorar su liquidez. La motivación fundamental del presente trabajo consiste encontrastar si se han producido las mejoras que vaticinaban los impulsores del nuevo sistema decontratación, en la creencia de que cualquier innovación llevada a cabo en el mercado debe sersometida a evaluación. Para ello, se estudia el efecto sobre indicadores de liquidez, rendimientoy volatilidad medios de los títulos a los que esta innovación afectó, utilizando pruebasparamétricas y no paramétricas y metodología basada en la técnica del event study. Laconclusión a la que se llega en este estudio es que la evidencia observada parece ser contraria alas expectativas que motivaron la implantación del nuevo sistema de contratación, pues seobserva un empeoramiento significativo en los niveles de liquidez y rentabilidad y, en cambio, nose observa disminución aparente en el nivel de volatilidad.Fixing, liquidez, volatilidad, rendimiento, negociación infrecuente. Fixing, Liquidity, Returns, Volatility, Thin Trading.

ON THE SMALL SAMPLE PROPERTIES OF DICKEY FULLER AND MAXIMUM LIKELIHOOD UNIT ROOT TESTS ON DISCRETE-SAMPLED SHORT-TERM INTEREST RATES

Testing for unit roots in short-term interest rates plays a key role in the empirical modelling of these series. It is widely assumed that the volatility of interest rates follows some time-varying function which is dependent of the level of the series. This may cause distortions in the performance of conventional tests for unit root nonstationarity since these are typically derived under the assumption of homoskedasticity. Given the relative unfamiliarity on the issue, we conducted an extensive Monte Carlo investigation in order to assess the performance of the DF unit root tests, and examined the effects on the limiting distributions of test procedures (t- and likelihood ratio tests) based on maximum likelihood estimation of models for short-term rates with a linear drift.Unit root, interest rates, CKLS model.

The Effects of Additive Outliers and Measurement Errors when Testing for Structural Breaks in Variance

This paper discusses the asymptotic and finite-sample properties of CUSUM-based tests for detecting structural breaks in volatility in the presence of stochastic contamination, such as additive outliers or measurement errors. This analysis is particularly relevant for financial data, on which these tests are commonly used to detect variance breaks. In particular, we focus on the tests by Inclán and Tiao [IT] (1994) and Kokoszka and Leipus [KL] (1998, 2000), which have been intensively used in the applied literature. Our results are extensible to related procedures. We show that the asymptotic distribution of the IT test can largely be affected by sample contamination, whereas the distribution of the KL test remains invariant. Furthermore, the break-point estimator of the KL test renders consistent estimates. In spite of the good large-sample properties of this test, large additive outliers tend to generate power distortions or wrong break-date estimates in small samples.

On the Small Sample Properties of Dickey Fuller and Maximum Likelihood Unit Root Tests on Discrete-Sampled Short-Term Interest Rates

Testing for unit roots in short-term interest rates plays a key role in the empirical modelling of these series. It is widely assumed that the volatility of interest rates follows some time-varying function which is dependent of the level of the series. This may cause distortions in the performance of conventional tests for unit root nonstationarity since these are typically derived under the assumption of homoskedasticity. Given the relative unfamiliarity on the issue, we conducted an extensive Monte Carlo investigation in order to assess the performance of the DF unit root tests, and examined the effects on the limiting distributions of test procedures (t- and likelihood ratio tests) based on maximum likelihood estimation of models for short-term rates with a linear drift.Unit root, interest rates, CKLS model.

- A COMPUTATIONAL APPROACH TO THE FUNDAMENTAL THEOREM OF ASSET PRICING IN A SINGLE-PERIOD MARKET.

In this paper we provide a new approach to the Fundamental Theorem of As-set Pricing. The proofof this result is usually based on Projection (Separation) Theorems and is far more intuitive. Ourapproach follow the relation between the projection problem an equivalent least squares problem.More precisely, we will use and iterative procedure in order to obtain solutions of a bounded leastsquare problem. This solutions will give, under some conditions, either the state price vector orthe arbitrage opportunity of the problem under consideration.Asset Pricing; Arbitrage; Mathematical Finance

Finite Sample Performance of Frequency and Time Domain Tests for Seasonal Fractional Integration

Testing the order of integration of economic and financial time series has become a conventional procedure prior to any modelling exercise. In this paper, we investigate and compare the finite sample properties of the frequency domain tests proposed by Robinson (1994) and the time domain procedure proposed by Hassler, Rodrigues and Rubia (2008) when applied to seasonal data.

MODELOS DE ESTIMACION DE LA PROBABILIDAD DE NEGOCIACION INFORMADA: UNA COMPARACION METODOLOGICA EN EL MERCADO ESPAÑOL

Determining the degree of informational asymmetry is a major topic in the literature of modern microstructure. In this paper, we review and analyze the suitability of the models for estimating the probability of informed trading [Easley et al., 1996; Nyholm, 2002, 2003]. The empirical analysis is carried out on the Spanish market. We find evidence suggesting that the regime-switching model by Nyholm (2002, 2003) does not provide estimates consistent with the effects of asymmetry. The specific analysis on the Spanish market reveals a higher likelihood of informed trading for the less-frequently traded assets as a consequence of the dramatic fall in the number of liquidity traders. This issue suggests a strong degree of aversion to the risk of adverse selection. Caracterizar el grado de asimetría informativa ocupa un papel predominante en la literatura de microestructura moderna. En este trabajo, se revisa y analiza la idoneidad de los métodos existentes para calibrar la probabilidad de negociación informada [Easley et al., 1996; Nyholm, 2002, 2003]. El análisis empírico toma como referencia el mercado español. La evidencia obtenida señala que el modelo de régimen cambiante de Nyholm (2002, 2003) no ofrece medidas consistentes con los efectos de asimetría informativa. El análisis sobre el mercado español revela una mayor probabilidad de negociación informada en los activos menos líquidos como consecuencia de una reducción drástica en el número de agentes que negocia por motivos de liquidez. Esta evidencia sugiere un fuerte comportamiento de aversión al riesgo de selección adversa.Información asimétrica, selección adversa, probabilidad de negociación informada, PIN Asymmetric information, adverse selection, probability of informed trading, PIN

COMPORTAMIENTO DEL PRECIO Y VOLATILIDAD EN EL POOL ELÉCTRICO ESPAÑOL

The aim of this paper consists of describing, analysing and modelling the dynamic of dailyprice series and its volatility in the Spanish Wholesale Electricity Market. The article describes themain characteristics of the sector after the deregulation process and the factors that establish thebehaviour of the observed prices, like seasonality in electricity demand, horizontal concentration inpower supply and the so-called competition transition costs. The series analysed is based on theaverage system price that balances supply and demand in the Electricity Daily Market over the periodJanuary 1998 to October 2000. We have obtained evidence of asymmetric conditional volatility aswell as a weekly seasonal non-stationary stochastic pattern in price. The later implies instability and,therefore, the absence of mean reversion in price, which could be due to the continuous changes inelectricity market rules and the poor competitive performance of the electricity pool in the sampleperiod. La finalidad del presente trabajo consiste en describir, analizar y modelizar la dinámica seguida por la serie de precios diarios y la de su volatilidad en el Mercado Diario de electricidad en España. El artículo describe las principales características del sector tras el proceso de liberalización, haciendo hincapié en diversos factores que condicionan la evolución observada del precio, como la estacionalidad de la demanda, la fuerte concentración horizontal del sector o el cobro de los costes de transición a la competencia. La serie analizada toma como referencia el precio medio diario que equilibra oferta y demanda en el mercado diario spot de electricidad desde enero de 1998, comienzo del mercado, hasta finales de 2000. La evidencia obtenida permite concluir la existencia de un patrón estacional semanal estocástico no estacionario en la serie, que se traduce en la inestabilidad del precio, y en la presencia de volatilidad condicional asimétrica. La inestabilidad en el precio podría estar originada por el continuo proceso de cambio normativo y el insuficiente funcionamiento competitivo del reciente mercado durante el periodo analizado.Sector eléctrico, contraste HEGY, CTCs, raíces unitarias estacionales, GARCH Electric sector, HEGY test, CTCs, seasonal unit roots, GARCH