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A Note on Cointegrating and Vector Autoregressive Relationships between CO2 allowances spot and futures prices

  • Julien Chevallier

    ()

    (Université Paris Dauphine)

This article investigates the cointegrating and vector autoregressive relationships in CO2 allowances spot and futures prices, valid for compliance under the EU Emissions Trading Scheme (EU ETS). Our empirical analysis yields to reject a cointegrating relationship between CO2 spot and futures prices, when accounting for the presence of a structural break in February 2009 (possibly due to the delayed impact of the ``credit crunch'' crisis). Then, a vector autoregression analysis (complemented by impulse response functions) indicates that futures prices are relevant for price formation in the spot market (while the opposite is not true). Overall, this analysis appears useful to making informed hedging decisions in the banking and finance industries, while allowing regulated utilities to relate futures prices to better forecasts of spot prices.

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File URL: http://www.accessecon.com/Pubs/EB/2010/Volume30/EB-10-V30-I2-P144.pdf
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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 30 (2010)
Issue (Month): 2 ()
Pages: 1564-1584

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Handle: RePEc:ebl:ecbull:eb-09-00717
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  9. Emilie Alberola & Julien Chevallier, 2009. "European Carbon Prices and Banking Restrictions: Evidence from Phase I (2005-2007)," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00649923, HAL.
  10. Jagannathan, Ravi, 1985. " An Investigation of Commodity Futures Prices Using the Consumption-based Intertemporal Capital Asset Pricing Model," Journal of Finance, American Finance Association, vol. 40(1), pages 175-91, March.
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  15. Alberola, Emilie & Chevallier, Julien & Chèze, Benoît, 2008. "Price drivers and structural breaks in European carbon prices 2005-07," Economics Papers from University Paris Dauphine 123456789/4222, Paris Dauphine University.
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