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Risk aversion and institutional information disclosure on the European carbon market: A case-study of the 2006 compliance event

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  • Chevallier, Julien
  • Ielpo, Florian
  • Mercier, Ludovic

Abstract

This article evaluates the impact of the 2006 compliance event on changes in investors' risk aversion on the European carbon market using the newly available option prices dataset. Thus, we aim at capturing the specific event that occurred on April 2007 as the European Commission disclosed the 2006 verified emissions data. Following the methodology existing for stock indices, we recover empirically risk aversion adjustments on the period 2006-2007 by estimating first the risk-neutral distribution from option prices and second the actual distribution from futures on the European Climate Exchange. Our results show evidence of a dramatic change in the market perception of risk around the 2006 yearly compliance event that has not been assessed yet.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Policy.

Volume (Year): 37 (2009)
Issue (Month): 1 (January)
Pages: 15-28

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Handle: RePEc:eee:enepol:v:37:y:2009:i:1:p:15-28

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Web page: http://www.elsevier.com/locate/enpol

Related research

Keywords: EU ETS Risk aversion Option and futures prices;

References

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Citations

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Cited by:
  1. Julien Chevallier, 2010. "Carbon Prices during the EU ETS Phase II: Dynamics and Volume Analysis," Working Papers halshs-00459140, HAL.
  2. Mansanet-Bataller, Maria & Chevallier, Julien & Hervé-Mignucci, Morgan & Alberola, Emilie, 2011. "EUA and sCER phase II price drivers: Unveiling the reasons for the existence of the EUA-sCER spread," Energy Policy, Elsevier, vol. 39(3), pages 1056-1069, March.
  3. Julien Chevallier, 2010. "Modelling the convenience yield in carbon prices using daily and realized measures," Working Papers halshs-00463921, HAL.
  4. Julien Chevallier & Yannick Le Pen & Benoît Sévi, 2009. "Options introduction and volatility in the EU ETS," EconomiX Working Papers 2009-33, University of Paris West - Nanterre la Défense, EconomiX.
  5. Maria Mansanet-Bataller & Julien Chevallier & Morgan Hervé-Mignucci & Emilie Alberola, 2010. "The EUA-sCER Spread: Compliance Strategies and Arbitrage in the European Carbon Market," Post-Print halshs-00458991, HAL.
  6. Julien Chevallier & Benoît Sévi, 2009. "On the Realized Volatility of the ECX CO2 Emissions 2008 Futures Contract: Distribution, Dynamics and Forecasting," Working Papers 2009.113, Fondazione Eni Enrico Mattei.
  7. Chevallier, Julien, 2011. "Detecting instability in the volatility of carbon prices," Open Access publications from Université Paris-Dauphine urn:hdl:123456789/5110, Université Paris-Dauphine.
  8. Leon Vinokur, 2009. "Disposition in the Carbon Market and Institutional Constraints," Working Papers 652, Queen Mary, University of London, School of Economics and Finance.
  9. Julien Chevallier, 2010. "The European carbon market (2005-2007): banking, pricing and risk-hedging strategies," Working Papers halshs-00458787, HAL.
  10. Marc Gronwald & Janina Ketterer & Stefan Trück, 2011. "The Dependence Structure between Carbon Emission Allowances and Financial Markets - A Copula Analysis," CESifo Working Paper Series 3418, CESifo Group Munich.

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