Futures trading with information asymmetry and OTC predominance: Another look at the volume/volatility relations in the European carbon markets

Yves Rannou and Pascal Barneto

Energy Economics, 2016, vol. 53, issue C, 159-174

Abstract: This paper constitutes the first exercise of analysing the European carbon market efficiency from a double perspective combining both nature of execution venues (screen vs. OTC trading) and their volatility/liquidity relations. Using a bivariate asymmetric GJR-GARCH model, we first document that OTC (exchange traded) trading volume shows consistent bi-(uni) directional Granger causality to our volatility estimates, consistent with greater responsiveness of the OTC (exchange traded) market to changes in market-wide (idiosyncratic) risks. Second, we report significant contemporaneous and lagged positive causality of OTC derivatives volume on spot/futures volatility confirming that the Sequential Information Arrival Hypothesis (SIAH) applies. Third, we find that the one-way causality from OTC to futures volumes is mainly driven by heterogeneous investor beliefs: trading volume provides an indication on how (private) information is dispersed and held at different levels rather than proxying information signal itself. After rejecting execution venues' substitutability, we advocate for systematic clearing and netting of OTC positions through a unique clearing house and reporting rules to identify speculation in line with Mifid (Art. 59) proposals.

Keywords: Carbon markets; Asymmetric volatility; Trading volume; Market architecture (search for similar items in EconPapers)
JEL-codes: G14 G19 G32 Q58 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0140988314002552
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Futures trading with information asymmetry and OTC predominance: Another look at the volume/volatility relations in the European carbon markets (2016)
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:eneeco:v:53:y:2016:i:c:p:159-174

DOI: 10.1016/j.eneco.2014.10.010

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().