Unveiling Forces: Electricity Market Volatility and Natural Gas Prices—Evidence from India

This study investigates the intricate relationships between natural gas prices and electricity price volatility in India. For this purpose, we use Indian daily market data from April 2012 to May 2024 and examine asymmetric interconnection between energy market indicators. By looking at both spot and futures prices of natural gas, we uncover detailed insights into how these indicators are inter-related over diverse time periods. Our findings indicate that increases and decreases in electricity market return volatility substantially and differently affect natural gas spot and future prices, highlighting the high asymmetric sensitivity of natural gas prices to electricity market volatility. The effect on natural gas trading volumes, however, is more complex. Increases in return volatility reduce the traded volumes, indicating increased risk aversion among market participants. JEL Classification: Q41, Q42, Q43, C19