Title: Tail dependence in the Australian electricity market: Evidences from the vine copula and the dependence-switching copula
Authors: Nicholas Apergis - University of Piraeus (Greece)
Giray Gozgor - Istanbul Medeniyet University (Turkey)
Chi Keung Marco Lau - University of Huddersfield (United Kingdom)
Shixuan Wang - University of Reading (United Kingdom) [presenting]
Abstract: The tail dependence of the Australian Electricity Markets (AEM) is investigated by using two copula methods: the vine copula (perspective: multivariate and static) and the dependence-switching copula (perspective: bivariate and dynamic). The findings from the vine copula approach indicate that the best multivariate dependence structure of the AEM exactly matches the geographical connectedness of the States, which implies that the infrastructure connectedness of transmission wires determines the dependence structure in the AEM. In addition, we observe that most pairs have a symmetric tail dependence indicated by the students t-copula, except in the case of the Gumbel copula and in relevance to the pair of Victoria and Tasmania, suggesting only the presence of right tail dependence. Based on the information criteria, we find the evidence of the dependence-switching copula for four pairs of states. For those pairs, the dependence-switching copula revealed the time-varying dependence structure, asymmetric tail dependence, and longer sojourn time in the certain regimes. Our findings provide valuable insights for market participants and policymakers.