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CO2 Prices and Portfolio Management during Phase II of the EU ETS

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  • Maria Mansanet-Bataller

    ()
    (Department of Financial Economics, Faculty of Economics, University of Valencia)

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    Abstract

    Since the launch of the European Union Emission Trading Scheme (EU ETS), the interest in the trade of EUAs is constantly increasing among academics and market participants. The objective of this article is twofold: (i) a detailed description of this new market is provided for portfolio managers, and (ii) a comprehensive study of the implications of including Phase II EUAs in diversified portfolios is undertaken using as expected returns both historical and risk-adjusted returns. The results show that the opportunity set do not vary if we consider historical returns and that if we take into account risk-adjusted returns the efficient set only increases if the investor takes a short position in Phase II EUAs.

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    File URL: http://cec-repec.site11.com/RePEc/cec/wpaper/11-01_WP_2011-01_Mansanet-Bataller.pdf
    File Function: First version, 2011
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    Bibliographic Info

    Paper provided by Chaire Economie du Climat in its series Working Papers with number 1101.

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    Length: 34 pages
    Date of creation: Jan 2011
    Date of revision:
    Handle: RePEc:cec:wpaper:1101

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    Web page: http://cec-repec.site11.com/
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    Keywords: CO2 Futures; Portfolio Management;

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    References

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    1. Maria Mansanet-Bataller & Angel Pardo & Enric Valor, 2007. "CO2 Prices, Energy and Weather," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 3), pages 73-92.
    2. Szymon Borak & Wolfgang Härdle & Stefan Trück & Rafal Weron, 2006. "Convenience Yields for CO2 Emission Allowance Futures Contracts," SFB 649 Discussion Papers, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany SFB649DP2006-076, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    3. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, American Finance Association, vol. 7(1), pages 77-91, 03.
    4. Elton, Edwin J & Gruber, Martin J & Rentzler, Joel C, 1987. "Professionally Managed, Publicly Traded Commodity Funds," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 60(2), pages 175-99, April.
    5. James L. Kuhle, 1987. "Portfolio Diversification and Return Benefits--Common Stock vs. Real Estate Investment Trusts (REITs)," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 2(2), pages 1-9.
    6. Eun, Cheol S & Resnick, Bruce G, 1988. " Exchange Rate Uncertainty, Forward Contracts, and International Portfolio Selection," Journal of Finance, American Finance Association, American Finance Association, vol. 43(1), pages 197-215, March.
    7. Vinod Chandrashekaran, 1999. "Time-Series Properties and Diversification Benefits of REIT Returns," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 17(1), pages 91-112.
    8. Alberola, Emilie & Chevallier, Julien & Cheze, Benoi^t, 2008. "Price drivers and structural breaks in European carbon prices 2005-2007," Energy Policy, Elsevier, Elsevier, vol. 36(2), pages 787-797, February.
    9. Roger G. Ibbotson & Laurence B. Siegel, 1984. "Real Estate Returns: A Comparison with Other Investments," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 12(3), pages 219-242.
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    Cited by:
    1. Oscar Carchano & Vicente Medina & Angel Pardo, 2014. "Assessing Rollover Criteria for EUAs and CERs," International Journal of Economics and Financial Issues, Econjournals, Econjournals, vol. 4(3), pages 669 - 676.

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