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Assessing price clustering in European Carbon Markets

  • Palao, Fernando
  • Pardo, Angel
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    The presence of price clustering in markets is taken as a sign of market inefficiency that can influence trading strategies. In this paper, we study the presence of a concentration in prices in carbon futures markets. Specifically, we analyze the European Carbon Futures Markets and test for evidence of preference for certain prices above others. Our results reveal the strong presence of price clustering in the carbon market at prices ending in digits 0 and 5. These findings support the attraction hypothesis, which endorses a significant clustering on gravitational prices, but also backs the negotiation hypothesis, which advocates greater clustering when trading costs are higher.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0306261911006763
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    Article provided by Elsevier in its journal Applied Energy.

    Volume (Year): 92 (2012)
    Issue (Month): C ()
    Pages: 51-56

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    Handle: RePEc:eee:appene:v:92:y:2012:i:c:p:51-56
    DOI: 10.1016/j.apenergy.2011.10.022
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    1. Clifford A. Ball & Walter N. Torous & Adrian E. Tschoegl, 1985. "The degree of price resolution: The case of the gold market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 5(1), pages 29-43, 03.
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    7. Parkinson, Michael, 1980. "The Extreme Value Method for Estimating the Variance of the Rate of Return," The Journal of Business, University of Chicago Press, vol. 53(1), pages 61-65, January.
    8. Easley, David & O'Hara, Maureen, 1987. "Price, trade size, and information in securities markets," Journal of Financial Economics, Elsevier, vol. 19(1), pages 69-90, September.
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    10. Brown, Philip & Mitchell, Jason, 2008. "Culture and stock price clustering: Evidence from The Peoples' Republic of China," Pacific-Basin Finance Journal, Elsevier, vol. 16(1-2), pages 95-120, January.
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