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A Note on Cointegrating and Vector Autoregressive Relationships between CO2 allowances spot and futures prices

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  • Julien Chevallier

    ()
    (Université Paris Dauphine)

Abstract

This article investigates the cointegrating and vector autoregressive relationships in CO2 allowances spot and futures prices, valid for compliance under the EU Emissions Trading Scheme (EU ETS). Our empirical analysis yields to reject a cointegrating relationship between CO2 spot and futures prices, when accounting for the presence of a structural break in February 2009 (possibly due to the delayed impact of the ``credit crunch'' crisis). Then, a vector autoregression analysis (complemented by impulse response functions) indicates that futures prices are relevant for price formation in the spot market (while the opposite is not true). Overall, this analysis appears useful to making informed hedging decisions in the banking and finance industries, while allowing regulated utilities to relate futures prices to better forecasts of spot prices.

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File URL: http://www.accessecon.com/Pubs/EB/2010/Volume30/EB-10-V30-I2-P144.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 30 (2010)
Issue (Month): 2 ()
Pages: 1564-1584

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Handle: RePEc:ebl:ecbull:eb-09-00717

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Keywords: CO2 Price; Cointegration; VAR;

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  7. Alberola, Emilie & Chevallier, Julien & Cheze, Benoi^t, 2008. "Price drivers and structural breaks in European carbon prices 2005-2007," Energy Policy, Elsevier, Elsevier, vol. 36(2), pages 787-797, February.
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Cited by:
  1. Mizrach, Bruce, 2012. "Integration of the global carbon markets," Energy Economics, Elsevier, Elsevier, vol. 34(1), pages 335-349.
  2. Shawkat Hammoudeh & Amine Lahiani & Duc Khuong Nguyen & Ricardo M. Sousa, 2014. "Energy prices and CO2 emission allowance prices: A quantile regression approach," NIPE Working Papers, NIPE - Universidade do Minho 06/2014, NIPE - Universidade do Minho.
  3. Schultz, Emma & Swieringa, John, 2014. "Catalysts for price discovery in the European Union Emissions Trading System," Journal of Banking & Finance, Elsevier, Elsevier, vol. 42(C), pages 112-122.
  4. Rittler, Daniel, 2012. "Price discovery and volatility spillovers in the European Union emissions trading scheme: A high-frequency analysis," Journal of Banking & Finance, Elsevier, Elsevier, vol. 36(3), pages 774-785.
  5. Marcel Gorenflo, 2013. "Futures price dynamics of CO 2 emission allowances," Empirical Economics, Springer, Springer, vol. 45(3), pages 1025-1047, December.
  6. Chevallier, Julien, 2012. "Cointegration between carbon spot and futures prices : from linear to nonlinear modeling," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/7936, Paris Dauphine University.
  7. Koop, Gary & Tole, Lise, 2013. "Modeling the relationship between European carbon permits and certified emission reductions," Journal of Empirical Finance, Elsevier, Elsevier, vol. 24(C), pages 166-181.

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