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Carbon trading thickness and market efficiency: A non-parametric test

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Author Info
de Vries, Frans
Montagnoli, Alberto

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Abstract

This note tests for the efficient market hypothesis (EMH) in the market for CO2 emission allowances in Phase I and Phase II of the European Union Emissions Trading Scheme (EU ETS). As usually is the case in emerging and non-competitive markets such as the EU ETS, trading often not occurs on a frequent basis. This has adverse implications for both the gains from permit trade as well as biases the EMH tests. Variance ratio tests are employed to adjust for the thin trading effect. The results indicate that Phase I - the trial and learning period - was inefficient, whereas the first period under Phase II shows signs of restoring market effic iency.

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File URL: http://hdl.handle.net/1893/1704
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Publisher Info
Paper provided by University of Stirling, Department of Economics in its series Stirling Economics Discussion Papers with number 2009-22.

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Date of creation: Oct 2009
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Handle: RePEc:stl:stledp:2009-22

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Postal: Department of Economics, Stirling, Stirling, Scotland FK9 4LA
Phone: +44 (0)1786 467470
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Web page: http://www.econ.stir.ac.uk/
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Related research
Keywords: variance ratio tests; thin trading; efficient market hypothesis; carbon trading; pollution markets;

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This page was last updated on 2009-11-13.

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