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The compass rose pattern in electricity prices

Chaos 19, 043106 (2009); doi:10.1063/1.3243920

Published 16 October 2009

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Jonathan A. Batten1 and Mahmoud Hamada2
1Department of Finance, Hong Kong University of Science & Technology, Clear Water Bay, Kowloon, Hong Kong
2Essent Trading International SA, 12-14 rue de Glacis-de-Rive, Geneva 1207, Switzerland
The “compass rose pattern” is known to appear in the phase portraits, or scatter diagrams, of the high-frequency returns of financial series. We first show that this pattern is also present in the returns of spot electricity prices. Early researchers investigating these phenomena hoped that these patterns signaled the presence of rich dynamics, possibly chaotic or fractal in nature. Although there is a definite autoregressive and conditional heteroscedasticity structure in electricity returns, we find that after simple filtering no pattern remains. While the series is non-normal in terms of their distribution and statistical tests fail to identify significant chaos, there is evidence of fractal structures in periodic price returns when measured over the trading day. The phase diagram of the filtered returns provides a useful visual check on independence, a property necessary for pricing and trading derivatives and portfolio construction, as well as providing useful insights into the market dynamics. ©2009 American Institute of Physics
History: Received 6 May 2008; accepted 12 September 2009; published 16 October 2009
Permalink: http://link.aip.org/link/?CHAOEH/19/043106/1

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KEYWORDS and PACS

Keywords
PACS
  • 84.70.+p
    High-current and high-voltage technology: power systems; power transmission lines and cables
  • 02.50.-r
    Probability theory, stochastic processes, and statistics
  • YEAR: 2009

PUBLICATION DATA

ISSN:
1054-1500 (print)   1089-7682 (online)
Publisher:
AIP is a member of CrossRef AIP

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