Illiquidity in the Japan electric power exchange

Historical data of system prices and trading volumes of electric power over the 48 half-hour intra-daily intervals in the Japan Electric Power Exchange (JEPX) from August 2005 to March 2015 are analyzed. The data allow me to compute several representative measures of economic illiquidity, namely, Amihud's price-impact measure, Roll's implied spread cost measure, and an idiosyncratic volatility measure. Based on a dynamic panel regression framework allowed by a panel reinterpretation of the data, I establish that (a) these illiquidity measures comove to some extent, (b) a higher trading volume of electric power does not lower the spread cost, (c) a positive contribution of the price-impact measure to the return is stronger than that of the spread cost, (d) the great earthquake might disturb the risk-return tradeoff, and (e) a negative return-volatility relationship may stem from overlooked upward spikes in electric power prices.