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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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Author Info
Chevallier, Julien
Ielpo, Florian
Mercier, Ludovic

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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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File URL: http://www.sciencedirect.com/science/article/B6V2W-4TF69H9-1/2/2955e7d727581108cc21a99074622e7a
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Publisher 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

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Related research
Keywords: EU ETS Risk aversion Option and futures prices;

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. repec:mop:credwp:09.05.84 is not listed on IDEAS
    Other versions:
  2. 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. [Downloadable!]
  3. repec:mop:credwp:09.07.85 is not listed on IDEAS
    Other versions:
  4. Julien Chevallier & Benoît Sévi, 2009. "On the realized volatility of the ECX CO2 emissions 2008 futures contract: distribution, dynamics and forecasting," Working Papers halshs-00387286_v1, HAL. [Downloadable!]
  5. Julien Chevallier & Yannick Le Pen & Benoît Sévi, 2009. "Options introduction and volatility in the EU ETS," Working Papers hal-00419339_v1, HAL. [Downloadable!]
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This page was last updated on 2009-12-12.


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