Impact of allowance submissions in European carbon emission markets

Dennis Philip and Yukun Shi

International Review of Financial Analysis, 2015, vol. 40, issue C, 27-37

Abstract: 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.

Keywords: Carbon allowance submission; Carbon emission markets; EU ETS; Mispricing; Price discovery; Volatility spillovers (search for similar items in EconPapers)
JEL-codes: G13 G17 G18 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521915000861
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:40:y:2015:i:c:p:27-37

DOI: 10.1016/j.irfa.2015.05.004

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 ().