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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

Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/4221.

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Date of creation: Jan 2009
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Publication status: Published in Energy Policy, 2009, Vol. 37, no. 1. pp. 15-28.Length: 13 pages
Handle: RePEc:dau:papers:123456789/4221

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Keywords: European Union Emissions Trading Scheme; CO2; Option and futures prices;

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