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Could Market Making be Profitable in The European Carbon Market?

Author

Listed:
  • Emilios Galariotis Iordanis Kalaitzoglou
  • Kyriaki Kosmidou
  • Spiros Papaefthimiou
  • Spyros Spyrou

    (AUEB - Athens University of Economics and Business)

Abstract

We investigate when market making can be profitable in the European Carbon Futures market, by developing an order type selection rule, based solely on transaction level data. We employ a granular approach that uses an observable variable, i.e. trading intensity, to extract the liquidity and information price components and we investigate their impact on spreads, volatility and ultimately on the profitability of different order types. We find that market orders are always less profitable than limit orders. In addition, market makers are expected to derive most of their profits in a low trading intensity environment, mainly due to higher liquidity commissions and a lower probability of dealing with better informed agents. In contrast, an unconditional limit order submission strategy from an off-floor trader should not be preferred, apart from a medium trading intensity environment, where information and liquidity premia adequately compensate them for execution and information risk.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Emilios Galariotis Iordanis Kalaitzoglou & Kyriaki Kosmidou & Spiros Papaefthimiou & Spyros Spyrou, 2019. "Could Market Making be Profitable in The European Carbon Market?," Post-Print hal-02263114, HAL.
    • Handle: RePEc:hal:journl:hal-02263114
    DOI: 10.5547/01956574.40.SI1.egal
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    Cited by:

    1. Kalaitzoglou, Iordanis Angelos & Ibrahim, Boulis Maher, 2023. "Market conditions and order-type preference," International Review of Financial Analysis, Elsevier, vol. 87(C).
    2. Gaoweijia Wang & Shanshan Li & Li Yang, 2022. "Research on the Pathway of Green Financial System to Implement the Realization of China’s Carbon Neutrality Target," IJERPH, MDPI, vol. 19(4), pages 1-18, February.

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    JEL classification:

    • F0 - International Economics - - General

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