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Is the EUA a new asset class?

Author

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  • Vicente Medina
  • Angel Pardo

Abstract

The listing of a new asset requires knowledge of its statistical properties prior to its use for hedging, speculative or risk management purposes. In this paper, the authors study the stylised facts of European Union Allowances (EUAs) returns. The majority of the phenomena observed, such as heavy tails, volatility clustering, asymmetric volatility and the presence of a high number of outliers are similar to those observed in both commodity futures and financial assets. However, properties such as negative asymmetry, positive correlation with stocks indexes and higher volatility levels during the trading session, typical of financial assets, and the existence of inflation hedge and positive correlation with bonds, typical of commodity futures, are also detected. Therefore, our results indicate that EUAs returns do not behave like common commodity futures or financial assets, and point to the fact that EUAs are a new asset class.

Suggested Citation

  • Vicente Medina & Angel Pardo, 2013. "Is the EUA a new asset class?," Quantitative Finance, Taylor & Francis Journals, vol. 13(4), pages 637-653, March.
  • Handle: RePEc:taf:quantf:v:13:y:2013:i:4:p:637-653
    DOI: 10.1080/14697688.2012.691985
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    References listed on IDEAS

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    1. Marc Chesney & Luca Taschini, 2012. "The Endogenous Price Dynamics of Emission Allowances and an Application to CO 2 Option Pricing," Applied Mathematical Finance, Taylor & Francis Journals, vol. 19(5), pages 447-475, November.
    2. Rotfuß, Waldemar, 2009. "Intraday price formation and volatility in the European Union emissions trading scheme: an introductory analysis," ZEW Discussion Papers 09-018, ZEW - Leibniz Centre for European Economic Research.
    3. Szymon Borak & Wolfgang Härdle & Stefan Trück & Rafal Weron, 2006. "Convenience Yields for CO2 Emission Allowance Futures Contracts," SFB 649 Discussion Papers SFB649DP2006-076, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    4. Stephen J Taylor, 2007. "Modelling Financial Time Series," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 6578, Juni.
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    Cited by:

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    3. Lakatos, Mária & Karai, Éva, 2015. "Buy or Sell? Hungarian Carbon Credit Trade: Years of Learning," Public Finance Quarterly, Corvinus University of Budapest, vol. 60(3), pages 326-341.
    4. Dai, Xingyu & Xiao, Ling & Wang, Qunwei & Dhesi, Gurjeet, 2021. "Multiscale interplay of higher-order moments between the carbon and energy markets during Phase III of the EU ETS," Energy Policy, Elsevier, vol. 156(C).
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    6. Pardo, Ángel, 2021. "Carbon and inflation," Finance Research Letters, Elsevier, vol. 38(C).
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    8. Maria Mansanet-Bataller & Àngel Pardo, 2023. "On the role of financial investors in carbon markets: Insights from commitment reports and carbon literature," Working Papers 2023-01, CRESE.

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