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Investigating efficiency in the U.S sulfur dioxide permit market

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  • Mohamed Amine Boutaba

    ()
    (University of Rouen)

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    Abstract

    This paper constitutes –to our best knowledge– the first empirical analysis investigating long-run and short-run efficiency in the U.S sulfur dioxide (SO2) permit futures market with respect to its ability to unbiasedly predict future spot prices, using cointegration and error-correction models. Empirical results show that the market is inefficient, suggesting the presence of profitable arbitrage opportunities among U.S SO2 permit prices. In light of our findings, we recommend that market actors consider warily the information incorporated in SO2 futures prices.

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    File URL: http://www.accessecon.com/Pubs/EB/2009/Volume29/EB-09-V29-I2-P75.pdf
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    Bibliographic Info

    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 29 (2009)
    Issue (Month): 2 ()
    Pages: 1308-1319

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    Handle: RePEc:ebl:ecbull:eb-09-00126

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    Related research

    Keywords: U.S SO2 permit market; market efficiency; cointegration; Error correction model.;

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    1. A. Denny Ellerman & Juan-Pablo Montero, 2007. "The Efficiency and Robustness of Allowance Banking in the U.S. Acid Rain Program," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 4), pages 47-72.
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    3. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, American Finance Association, vol. 25(2), pages 383-417, May.
    4. Ellerman,A. Denny & Joskow,Paul L. & Schmalensee,Richard & Montero,Juan-Pablo & Bailey,Elizabeth M., 2000. "Markets for Clean Air," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521660839.
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    6. Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, Econometric Society, vol. 57(6), pages 1361-1401, November.
    7. Richard Schmalensee & Paul L. Joskow & A. Denny Ellerman & Juan Pablo Montero & Elizabeth M. Bailey, 1998. "An Interim Evaluation of Sulfur Dioxide Emissions Trading," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 12(3), pages 53-68, Summer.
    8. Joskow, Paul L & Schmalensee, Richard & Bailey, Elizabeth M, 1998. "The Market for Sulfur Dioxide Emissions," American Economic Review, American Economic Association, American Economic Association, vol. 88(4), pages 669-85, September.
    9. Burtraw, Dallas & Palmer, Karen & Krupnick, Alan & Evans, David & Toth, Russell, 2005. "Economics of Pollution Trading for SO2 and NOx," Discussion Papers, Resources For the Future dp-05-05, Resources For the Future.
    10. Freeman, Jody & Kolstad, Charles D., 2006. "Moving to Markets in Environmental Regulation: Lessons from Twenty Years of Experience," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780195189650, October.
    11. John R. Swinton, 2002. "The Potential for Cost Savings in the Sulfur Dioxide Allowance Market: Empirical Evidence from Florida," Land Economics, University of Wisconsin Press, University of Wisconsin Press, vol. 78(3), pages 390-404.
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