Financial implications of the EU Emission Trading System: an analysis of wavelet coherence and volatility spillovers

Pietro De Ponti and Matteo Romagnoli
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Pietro De Ponti: Department of Economics, Management and Statistics, University of Milano-Bicocca
Matteo Romagnoli: Department of Economics, Management and Statistics, University of Milano-Bicocca

No 2022.22, Working Papers from Fondazione Eni Enrico Mattei

Abstract: We study the European Union’s Emission Trading System (EU ETS) from a financial perspective. Using ARMA-eGARCH filtered volatilities, we first discuss the evolution of the volatility of EU ETS allowances’ returns from 2008 to 2021. Second, we study the degree of co-movement and interdependence between the EU ETS returns’ volatility and those of 37 large companies in industries subject to the System; to this end, we employ Wavelet Coherence and Volatility Spillovers Analyses. Despite spotting seasons of co-movement between volatilities in the markets under consideration, the market performances of the companies in our sample are not particularly responsive to the EU ETS dynamics, except for temporary seasons of interconnection in correspondence of relevant policy changes.

Keywords: EU Emission Trading System; volatility spillovers; wavelet coherence (search for similar items in EconPapers)
JEL-codes: C22 G11 Q58 (search for similar items in EconPapers)
Date: 2022-08
New Economics Papers: this item is included in nep-eec, nep-ene and nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:fem:femwpa:2022.22

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