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Market efficiency in the European carbon markets

Author

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  • Amélie Charles

    (Audencia Recherche - Audencia Business School)

  • Olivier Darné

    (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - IEMN-IAE Nantes - Institut d'Économie et de Management de Nantes - Institut d'Administration des Entreprises - Nantes - UN - Université de Nantes)

  • Jessica Fouilloux

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

Abstract

In this paper, we study the relationship between futures and spot prices in the European carbon markets from the cost-of-carry hypothesis. The aim is to investigate the extent of efficiency market. The three main European markets (BlueNext, EEX and ECX) are analyzed during Phase II, covering the period from March 13, 2009 to January, 17, 2012. Futures contracts are found to be cointegrated with spot prices and interest rates for several maturities in the three CO2 markets. Results are similar when structural breaks are taken into account. According to individual and joint tests, the cost-of-carry model is rejected for all maturities and CO2 markets, implying that neither contract is priced according to the cost-of-carry model. The absence of the cost-of-carry relationship can be interpreted as an indicator of market inefficiency and may bring arbitrage opportunities in the CO2 market.

Suggested Citation

  • Amélie Charles & Olivier Darné & Jessica Fouilloux, 2013. "Market efficiency in the European carbon markets," Post-Print halshs-00846679, HAL.
    • Handle: RePEc:hal:journl:halshs-00846679
    DOI: 10.1016/j.enpol.2013.05.036
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00846679
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