Mar 6, 2013 Report No：12-22
An Empirical Market Microstructure Analysis of the Implied Spread Cost in the Japanese Day-Ahead Electricity Market
Historical data of system prices over 48 half-hour intra-daily intervals in the Japan Electric Power Exchange (JEPX) are analyzed. Given theoretical and graphical preliminary analysis, we extract measures of the spread between the ecient price and actual transaction price for each month from November 2006 to April 2012. The measures are based on the rst-order serial covariance of transaction returns proposed by Roll (1984) and on the historical highs and lows with some bias correction proposed by Corwin and Schultz (2012). Viewed as measures of the marginal costs of trading in the JEPX, the estimated spreads are on average at least 50 times as large as the one in the well-functioning S&P500 index futures market. The traded amount of electricity does not explain the variation of spreads once the time-of-a-day xed eects and month-specic time eect are explicitly accounted for in the panel regression.
|Keywords||Market Microstructure, Implied Spread, Roll measure, Periodic Call-Auction, Wholesale Electricity Market|