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Modelling the dynamics of European carbon futures price: A Zipf analysis

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  • Zhu, Bangzhu
  • Ma, Shujiao
  • Chevallier, Julien
  • Wei, Yiming

Abstract

This article investigates the European carbon futures price dynamics by applying the Zipf analysis. The results show that: first, carbon price behaviour is asymmetric, and the long-term bearish probability is greater than the long-term bullish probability. Second, time-scales of investment and speculators' expectations of returns have dual effects on carbon price behaviour. The longer the time-scales of investment, the higher the bearish probability. The lower the expectations of returns, the smaller the distortion of carbon price behaviour. Third, the differences in carbon market cognitions from non-greedy speculators with different expectations of returns mainly lie in the amplitudes and occasions of carbon price fluctuations, rather than in the carbon price fluctuations themselves. Fourth, speculators' expectations of returns have critical points. Once the critical points are reached, they will no longer be able to distort carbon price behaviour. Finally, we discuss some investment advice for supports of the decision-makers. For non-greedy-type speculators, they will choose to hold negatively in the short term and buy and hold in the long term, while for greedy-type speculators they will sell their European Union Allowances (EUAs) in the short term, and buy and hold in the long term. The results are helpful to hedge against unwanted carbon price movements, and to understand the transactions between different types of agents.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 38 (2014)
Issue (Month): C ()
Pages: 372-380

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Handle: RePEc:eee:ecmode:v:38:y:2014:i:c:p:372-380

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Web page: http://www.elsevier.com/locate/inca/30411

Related research

Keywords: EU ETS; Carbon futures price; Zipf analysis; Expectation of return; Time-scale of investment;

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Citations

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Cited by:
  1. Sahbi Farhani & Muhammad Shahbaz, 2014. "What role of renewable and nonrenewable electricity consumption and output is needed to initially mitigate CO2 emissions in MENA region?," Working Papers 2014-455, Department of Research, Ipag Business School.
  2. Atil, Ahmed & Lahiani, Amine & Nguyen, Duc Khuong, 2014. "Asymmetric and nonlinear pass-through of crude oil prices to gasoline and natural gas prices," Energy Policy, Elsevier, vol. 65(C), pages 567-573.
  3. Mohamed Arouri & Christophe Rault & Frédéric Teulon, 2014. "Economic policy uncertainty, oil price shocks and GCC stock markets," Economics Bulletin, AccessEcon, vol. 34(3), pages 1822-1834.
  4. Mohamed El Hedi Arouri & Adel Ben Youssef & Hatem M'Henni & Christophe Rault, 2014. "Energy Use and Economic Growth in Africa: A Panel Granger-Causality Investigation," CESifo Working Paper Series 4844, CESifo Group Munich.
  5. Ahdi N. Ajmi & Shawkat Hammoudeh & Ahmed A. A. Khalifa & Duc K. Nguyen, 2014. "Causality across international equity and commodity markets: When asymmetry and nonlinearity matter," Working Papers 2014-546, Department of Research, Ipag Business School.
  6. Sahbi Farhani & Muhammad Shahbaz & Mohamed Arouri, 2014. "Panel analysis of CO2 emissions, GDP, energy consumption, trade openness and urbanization for MENA countries," Working Papers 2014-449, Department of Research, Ipag Business School.
  7. Walid Chkili & Chaker Aloui & Duc Khuong Nguyen, 2014. "Instabilities in the relationships and hedging strategies between crude oil and US stock markets: do long memory and asymmetry matter?," Working Papers 2014-549, Department of Research, Ipag Business School.
  8. Lanouar Charfeddine & Rafik Jbir & Jihane Karboul, 2014. "Price convergence and integration in the Germany, France and Italy electricity markets," Working Papers 2014-502, Department of Research, Ipag Business School.
  9. Nanthakumar, Loganathan & Shahbaz, Muhammad & Taha, Roshaiza, 2014. "The Effect of Green Taxation and Economic Growth on Environment Hazards: The Case of Malaysia," MPRA Paper 56843, University Library of Munich, Germany, revised 23 Jun 2014.
  10. Anis Omri & Duc Khuong Nguyen, 2014. "On the determinants of renewable energy consumption: International Evidence," Working Papers 2014-535, Department of Research, Ipag Business School.
  11. Besma Talbi & Duc Khuong Nguyen, 2014. "An Empirical Analysis of Energy Demand in Tunisia," Economics Bulletin, AccessEcon, vol. 34(1), pages 452-458.
  12. Duc Khuong Nguyen & Ricardo M. Sousa & Gazi Salah Uddin, 2014. "Testing for asymmetric causality from U.S. equity returns to commodity futures returns," Working Papers 2014-545, Department of Research, Ipag Business School.
  13. Mehmet Balcılar & Rıza Demirer & Shawkat Hammoudeh & Duc Khuong Nguyen, 2014. "Risk Spillovers across the Energy and Carbon Markets and Hedging Strategies for Carbon Risk," Working Papers 2014-552, Department of Research, Ipag Business School.
  14. Ihtisham Abdul Malik & Ghamz-e-Ali Siyal & Alias Bin Abdullah & Arif Alam & Khalid Zaman, 2014. "Turn on the Lights: Macroeconomic Factors Affecting Renewable in Pakistan," Working Papers 2014-518, Department of Research, Ipag Business School.

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