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Speculative and hedging activities in the European carbon market

Author

Listed:
  • Lucia, Julio J.
  • Mansanet-Bataller, Maria
  • Pardo, Ángel

Abstract

We explore the dynamics of the speculative and hedging activities in European futures carbon markets by using volume and open interest data. A comparison of the three phases in the European Union Emission Trading Scheme (EU ETS) reveals that (i) Phase II of the EU ETS seems to be the most speculative phase to date and (ii) the highest degree of speculative activity for every single phase occurs at the moment of listing the contracts for the first time. A seasonality analysis identifies a higher level of speculation in the first quarter of each year, related to the schedule of deadlines of the EU ETS. In addition, a time series analysis confirms that most of the speculative activity each year occurs in the front contract, whereas the hedging demand concentrates in the second-to-deliver futures contract.

Suggested Citation

  • Lucia, Julio J. & Mansanet-Bataller, Maria & Pardo, Ángel, 2015. "Speculative and hedging activities in the European carbon market," Energy Policy, Elsevier, vol. 82(C), pages 342-351.
  • Handle: RePEc:eee:enepol:v:82:y:2015:i:c:p:342-351
    DOI: 10.1016/j.enpol.2014.11.014
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Martin T. Bohl & Pierre L. Siklos & Claudia Wellenreuther, 2018. "Speculative activity and returns volatility of Chinese major agricultural commodity futures," CAMA Working Papers 2018-06, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    2. repec:eee:enepol:v:107:y:2017:i:c:p:119-130 is not listed on IDEAS
    3. Reckling, Dennis, 2016. "Variance risk premia in CO2 markets: A political perspective," Energy Policy, Elsevier, vol. 94(C), pages 345-354.
    4. repec:eee:asieco:v:54:y:2018:i:c:p:69-91 is not listed on IDEAS
    5. Tan, Xue-Ping & Wang, Xin-Yu, 2017. "Dependence changes between the carbon price and its fundamentals: A quantile regression approach," Applied Energy, Elsevier, vol. 190(C), pages 306-325.

    More about this item

    Keywords

    Derivatives; EUA; ECX; Open interest; Trading volume;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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