The Market Microstructure of the European Climate Exchange
Bruce Mizrach () and
Yoichi Otsubo ()
Departmental Working Papers from Rutgers University, Department of Economics
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
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 (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:rut:rutres:201005
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