Time-Frequency Analysis of the Relationship Between EUA and CER Carbon Markets

Jules Sadefo-Kamdem, Ange Nsouadi and Michel Terraza ()
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Jules Sadefo-Kamdem: UG - Université de Guyane, LAMETA - Laboratoire Montpelliérain d'Économie Théorique et Appliquée - UM1 - Université Montpellier 1 - UPVM - Université Paul-Valéry - Montpellier 3 - INRA - Institut National de la Recherche Agronomique - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier
Ange Nsouadi: LAMETA - Laboratoire Montpelliérain d'Économie Théorique et Appliquée - UM1 - Université Montpellier 1 - UPVM - Université Paul-Valéry - Montpellier 3 - INRA - Institut National de la Recherche Agronomique - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier
Michel Terraza: LAMETA - Laboratoire Montpelliérain d'Économie Théorique et Appliquée - UM1 - Université Montpellier 1 - UPVM - Université Paul-Valéry - Montpellier 3 - INRA - Institut National de la Recherche Agronomique - Montpellier SupAgro - Centre international d'études supérieures en sciences agronomiques - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier
Authors registered in the RePEc Author Service: Jules SADEFO KAMDEM

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Abstract: In this paper, interactions or co-movement between the CER and EUA futures prices are examined in order to shed light on the dependency between the European Union Emissions Trading Scheme (EU ETS) and the clean development mechanism (MDP). Our analysis uses the wavelet method to model the correlation between CER and EUA in the time-frequency domain. It highlights the impact of different investors (according to their investment horizons) on the co-movement between the CER and EUA prices, and therefore, the behavior of individual investors as speculators, arbitrageurs, and hedgers on European allowance and CDM credits cumulatively. In this vein, we analyze according to the frequency intervals, price convergence, identification of potential factors that could explain a difference in futures prices, and structural changes in the EUA and CER prices. The application is made using daily EUA's and CER's prices data.

Keywords: Co-movement; Carbon market; Wavelet analysis; Co-integration; VAR; Agents heterogeneity; Spread-option (search for similar items in EconPapers)
Date: 2016-04
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Citations: View citations in EconPapers (4)

Published in Environmental Modeling & Assessment, 2016, 21 (2), pp.279-289. ⟨10.1007/s10666-015-9478-y⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02901719

DOI: 10.1007/s10666-015-9478-y

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