Impact of allowance submissions in European carbon emission markets

Philip, Dennis and Shi, Yukun (2015) Impact of allowance submissions in European carbon emission markets. International Review of Financial Analysis, 40 . pp. 27-37. ISSN 1057-5219 [Article] (doi:10.1016/j.irfa.2015.05.004)

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This paper studies the impact of the April allowance submissions mandate under the European Union emission trading scheme (EU ETS) in carbon emission markets. Using intraday order flow data, we test for the cross-market efficiency of spot-futures dynamics and find that the equilibrium level, adjustment speed and no-arbitrage boundaries of the spot and futures relationship shift subsequent to the submission date. In addition, our results show that the allowance submissions affect the price discovery process, with the carbon spot market providing stronger price leadership in the periods before the submission date and the futures market playing the predominant informational role thereafter. Using the heterogeneous autoregressive realized volatility (HAR-RV) model, we also find a change in volatility spillovers before the submission date, particularly from the spot to the futures market. Overall, the results suggest that the April allowance submissions have significant impact on the time series dynamics of spot and futures carbon emission markets.

Item Type: Article
Research Areas: A. > Business School > Accounting and Finance
Item ID: 16043
Notes on copyright: Access to full text restricted pending copyright check.
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Depositing User: Yukun Shi
Date Deposited: 15 May 2015 13:20
Last Modified: 03 Apr 2019 08:14

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