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Informational efficiency of the US SO2 permit market

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  • J. ALBRECHT

    ()

  • T. VERBEKE

    ()

  • M. DE CLERCQ

    ()

Abstract

We test the information efficiency of the market for SO2 permits in the US. In order to do so, we perform a number of unit root tests and test if the changes in the SO2 permit price are serially correlated. Furthermore, we test if it would have been possible to earn a profit based on knowledge on the SO2 permit’s price history. The evidence presented in this paper suggests that this market is efficient from an informational point of view. Although one could question this hypothesis from a statistical point of view, economic significance suggests that this market is indeed efficient.

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File URL: http://www.feb.ugent.be/nl/Ondz/wp/Papers/wp_04_250.pdf
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Bibliographic Info

Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 04/250.

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Length: 30 pages
Date of creation: Jun 2004
Date of revision:
Handle: RePEc:rug:rugwps:04/250

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Related research

Keywords: SO2; tradable permits market; market efficiency; unit roots; random walk hypothesis.;

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References

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  1. Joskow, Paul L & Schmalensee, Richard & Bailey, Elizabeth M, 1998. "The Market for Sulfur Dioxide Emissions," American Economic Review, American Economic Association, vol. 88(4), pages 669-85, September.
  2. Perron, P., 1990. "Further Evidence On Breaking Trend Functions In Macroeconomics Variables," Papers 350, Princeton, Department of Economics - Econometric Research Program.
  3. Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
  4. Burton G. Malkiel, 2003. "The Efficient Market Hypothesis and Its Critics," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 59-82, Winter.
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Cited by:
  1. Olivier Rousse & Benoît Sévi, 2005. "Behavioral Heterogeneity in the US Sulfur Dioxide Emissions Allowance Trading Program," ERSA conference papers ersa05p550, European Regional Science Association.
  2. PAOLO COLLA & MARC GERMAIN & VINCENT Van STEENBERGHE, 2012. "Environmental Policy and Speculation on Markets for Emission Permits," Economica, London School of Economics and Political Science, vol. 79(313), pages 152-182, 01.
  3. Holland, Stephen P. & Moore, Michael R., 2013. "Market design in cap and trade programs: Permit validity and compliance timing," Journal of Environmental Economics and Management, Elsevier, vol. 66(3), pages 671-687.
  4. Kimmo Ollikka & Piia Aatola & Markku Ollikainen, 2012. "Informational Efficiency of the EU ETS market ? a study of price predictability and profitable trading," Working Papers 28, Government Institute for Economic Research Finland (VATT).

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