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Measuring the risk-adjusted performance of CO2 emission markets: Evidence from SENDECO2

José Manuel Feria-Domínguez, David Rodriguez-Carrillero and José Carlos Guerra-Martinez

Utilities Policy, 2018, vol. 50, issue C, 124-132

Abstract: This paper analyzes the historical risk-adjusted performance of CO2 emission allowances traded on SENDECO2 (the reference market for Southern Europe) by using the daily spot prices of the European Union Allowances (EUAs) and Certified Emission Reductions (CERs) from 2008 to 2012. We revisit the Sharpe-ratio, taking into account the modified version proposed by Ferruz and Sarto (1997), to propose a new performance indicator, the Sharpe-VaRFS, estimated by Monte Carlo simulation. Due to the existing imbalances between demand and supply for allowances, both the EUA and CER markets underperform when compared with financial stock markets, being unattractive to potential investors.

Keywords: CO2 allowances; Risk-adjusted performance indicators; Value at risk; Sharpe-VaR ratio; Monte Carlo simulation; SENDECO2 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:juipol:v:50:y:2018:i:c:p:124-132