Time-frequency connectedness between Asian electricity sectors

Abstract

This study examines the connectedness of the electricity sector in Asia by employing the connectedness models of Diebold and Yilmaz (2012) and Barunik and Krehlik (2018). Our sample includes the following Asian countries: China, Hong Kong, India, Japan, Malaysia, Pakistan, Philippines, South Korea, Thailand, and Vietnam. Our full sample analysis reveals a strongly connected electricity sector in the sample Asian countries, signifying a substantial influence of Asia's electric utilities on each other. Moreover, our frequency-based analysis exhibits that the connectedness between electricity sectors in Asia is more pronounced in the short-run compared to the long-run horizon. Further, we explore the time-varying connectedness by employing a rolling window analysis that shows the dynamic nature of connectedness and reveals the significant effect of important events like the Chinese financial crisis and the ongoing pandemic crisis. We also explore the connectedness between Asian electricity utility sectors during turbulent times by employing subsample analyses covering the Chinese financial crisis and Pandemic crisis periods. The subsample analyses show that market-wide uncertainty drives up the connectedness, and it is relatively more pronounced for short-run frequencies and during the pandemic crisis period. The network connectedness analysis suggests that regulators could identify countries that most threaten system stability in the Asian electricity sector.