Illiquidity in the Japan Electric Power Exchange

Author Name IKEDA Shin Suke (Otaru University of Commerce)
Creation Date/NO. November 2017 17-E-122
Research Project Study on Markets and Policies in the Power System Reform
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Historical data of system prices and traded volume of electric power over the 48 half-hour intra-daily intervals in the Japan Electric Power Exchange (JEPX) from August 2005 to March 2015 are analyzed. The data allow computation of two representative measures of economic illiquidity, namely, Amihud's price-impact measure and Roll's implied spread cost measure. Based on a dynamic panel regression framework allowed by a panel reinterpretation of the data, I establish that (a) these illiquidity measures comove to some extent, (b) a positive contribution of the price-impact measure to returns is stronger than that of the spread cost, (c) a higher traded volume of electric power does not lower the spread cost, and (d) a great earthquake might disturb the risk-return tradeoff.

Forthcoming: Ikeda, Shin S. "Illiquidity in the Japan electric power exchange," Journal of Commodity Markets.