Statistical regularities of Carbon emission trading market: Evidence from European Union allowances

Zeyu Zheng, Rui Xiao, Haibo Shi, Guihong Li and Xiaofeng Zhou

Physica A: Statistical Mechanics and its Applications, 2015, vol. 426, issue C, 9-15

Abstract: As an emerging financial market, the trading value of carbon emission trading market has definitely increased. In recent years, the carbon emission allowances have already become a way of investment. They are bought and sold not only by carbon emitters but also by investors. In this paper, we analyzed the price fluctuations of the European Union allowances (EUA) futures in European Climate Exchange (ECX) market from 2007 to 2011. The symmetric and power-law probability density function of return time series was displayed. We found that there are only short-range correlations in price changes (return), while long-range correlations in the absolute of price changes (volatility). Further, detrended fluctuation analysis (DFA) approach was applied with focus on long-range autocorrelations and Hurst exponent. We observed long-range power-law autocorrelations in the volatility that quantify risk, and found that they decay much more slowly than the autocorrelation of return time series. Our analysis also showed that the significant cross correlations exist between return time series of EUA and many other returns. These cross correlations exist in a wide range of fields, including stock markets, energy concerned commodities futures, and financial futures. The significant cross-correlations between energy concerned futures and EUA indicate the physical relationship between carbon emission and energy production process. Additionally, the cross-correlations between financial futures and EUA indicate that the speculation behavior may become an important factor that can affect the price of EUA. Finally we modeled the long-range volatility time series of EUA with a particular version of the GARCH process, and the result also suggests long-range volatility autocorrelations.

Keywords: European Union allowances; Volatility; Detrended fluctuation analysis; Cross correlations; Long-range correlation (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:426:y:2015:i:c:p:9-15

DOI: 10.1016/j.physa.2015.01.018

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