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The Market Microstructure of the European Climate Exchange

Bruce Mizrach () and Yoichi Otsubo ()

Departmental Working Papers from Rutgers University, Department of Economics

Abstract: 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. Trading volumes are active, with EUA volume doubling in 2009. Spreads range from €0.02 to €0.06 for EUA futures and from €0.07 to €0.18 for CER. Market impact estimates imply that an average trade will move the EUA market by €0.0108 and the CER market €0.0429. 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: carbon trading; market microstructure; bid-ask spread; market impact; information shares (search for similar items in EconPapers)
JEL-codes: G13 G32 E44 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2010-07-03
New Economics Papers: this item is included in nep-ene, nep-env, nep-eur and nep-mst
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http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1621340

Related works:
Journal Article: The market microstructure of the European climate exchange (2014) Downloads
Working Paper: The Market Microstructure of the European Climate Exchange (2012) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:rut:rutres:201005

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