Nonlinearity in cap-and-trade systems: The EUA price and its fundamentals
AbstractIn this paper we examine the nonlinear relation between the EUA price and its fundamentals, such as energy prices, macroeconomic risk factors and weather conditions. By estimating a Markov regime-switching model, we find that the relation between the EUA price and its fundamentals varies over time. In particular, we are able to identify a low and a high volatility regime, both showing a strong impact of the fundamentals on the EUA price. The high volatility regime is predominant during the recession of 2008 and 2009 - a time period in which the actual emissions sharply decreased due to the economic crisis. --
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Bibliographic InfoPaper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 13-001.
Date of creation: 2013
Date of revision:
EU ETS; EUA Price Fundamentals; Markov Regime-Switching;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-26 (All new papers)
- NEP-ENE-2013-01-26 (Energy Economics)
- NEP-ORE-2013-01-26 (Operations Research)
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