Experimenting with the Forecasting Power of Speculation in the Predictability of Carbon Prices

Kazeem O. Isah, Ojo Adelakun () and Elias A. Udeaja

Emerging Markets Finance and Trade, 2024, vol. 60, issue 12, 2691-2702

Abstract: Drawing from the big data archive of Google Trends, we innovatively construct a novel data set, the composite news-based speculation index, to proxy for the role of speculation in the predictability of carbon prices. We employ a theory-based multi-factor predictive framework to test the hypothesis that both emission compliance and emission noncompliance dynamics of the ETS matter in the predictability of carbon prices. We show that speculation is a good predictor of carbon prices. We find the robustness of the forecasting power of speculation in the predictability of carbon prices evident for both in-sample and out-of-sample forecasts and across different forecast horizons.

Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:60:y:2024:i:12:p:2691-2702

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DOI: 10.1080/1540496X.2024.2324194

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