The Market Microstructure of the European Climate Exchange
Yoichi Otsubo () and
Bruce Mizrach ()
LSF Research Working Paper Series from Luxembourg School of Finance, University of Luxembourg
This paper analyzes the market microstructure of the European Climate Exchange, the largest EU ETS trading venue. The ECX captures 2/3 of the screen traded market in EUA and more than 90% in CER. 2009 Trading volumes total ?22 billion and are growing, with EUA transactions doubling, and CER volume up 61%. Spreads range from ?0:02 to ?0:06 for EUA and from ?0:07 to ?0:18 for CER. Market impact estimates imply that an average trade will move the EUA market by 1.08 euro centimes and the CER market 4.29. Both Granger-Gonzalo and Hasbrouck information shares imply that approximately 90% of price discovery is taking place in the ECX futures market. We find imbalances in the order book help predict returns for up to three days. A simple trading strategy that enters the market long or short when the order imbalance is strong is profitable even after accounting for spreads and market impact. "Keywords:""Keywords: carbon; market microstructure; bid-ask spread; information share; order imbalance"""
JEL-codes: G13 G32 E44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene, nep-env, nep-eur and nep-mst
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Journal Article: The market microstructure of the European climate exchange (2014)
Working Paper: The Market Microstructure of the European Climate Exchange (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:crf:wpaper:12-7
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