Measuring informational efficiency of the European carbon market — A quantitative evaluation of higher order dependence

Cristina Sattarhoff and Marc Gronwald

International Review of Financial Analysis, 2022, vol. 84, issue C

Abstract: This paper introduces a new method for measuring nonlinear predictability in financial price changes: the so-called intermittency coefficient, a parameter of the multifractal random walk model by Bacry et al. (2001). As the intermittency coefficient can quantify the degree of nonlinear deviation from a random walk, we employ its estimates from financial data as a proxy for the loss of financial market efficiency. In addition, we propose a new statistical test of the random walk hypothesis. In an empirical application using data from the largest currently existing market for tradable pollution permits, the European Union Emissions Trading Scheme (EU ETS), we show that the degree of efficiency of this market remains largely unchanged over the period of observation 2008–2019. This suggests that the market has reached a mature state: informational efficiency in Phase III remains at a level comparable to Phase II. What is more, the EU ETS is found to be more efficient than the US stock market. This result, surprising as such, is largely attributable to the lower exposure to global economic shocks of the EU ETS.

Keywords: Weak-form market efficiency; Degree of market efficiency; Multifractality; Multifractal random walk; European union emissions trading scheme (search for similar items in EconPapers)
JEL-codes: C53 C58 G14 Q02 Q54 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521922003532
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:84:y:2022:i:c:s1057521922003532

DOI: 10.1016/j.irfa.2022.102403

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().