Nonlinear price dynamics between CO2 futures and Brent
AbstractThe growing expansion of European Union Emission Trading futures market and the parallel increase in the tendency of using such products also as financial instruments in the capital market outline the interest in the analysis of European Union Allowances (EUA) futures prices drivers. We applied recent developments in the threshold cointegration approach to investigate the presence of asymmetric dynamic adjusting processes between CO2 futures and spot Brent prices. We found evidence of the existences of long-run nonlinear relationships, with Brent prices driving EUA futures prices to a long-run equilibrium up to a point where the gap between the two prices exceeds a critical threshold. Hence, EUA futures market currently do not act only as a tool for compliance within the environmental regulation (i.e. to contain CO2 emissions), but has become a financial instrument to support firms' profit-maximizing behaviour.
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Bibliographic InfoArticle provided by Taylor and Francis Journals in its journal Applied Economics Letters.
Volume (Year): 18 (2011)
Issue (Month): 13 ()
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Web page: http://www.tandf.co.uk/journals/routledge/13504851.html
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- Lutz, Benjamin Johannes & Pigorsch, Uta & Rotfuß, Waldemar, 2013. "Nonlinearity in cap-and-trade systems: The EUA price and its fundamentals," ZEW Discussion Papers 13-001, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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