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Pricing efficiency of European carbon futures market during the COVID-19 pandemic

Author

Listed:
  • Abhinava Tripathi

    (Department of Management Sciences, Indian Institute of Technology Kanpur, Kanpur, India)

  • Charu Vadhava
  • Ravi Raushan Jha

    (Department of Management Studies, Indian Institute of Technology Roorkee, Roorkee, India)

Abstract

We investigate the effects of the COVID-19 pandemic on the efficiency of the European Union Emission Trading Scheme (EU-ETS). This study provides one of the first accounts of the pricing efficiency of EU-ETS around the final leg of its Phase (III) implementation. The study documents that the EU-ETS futures prices become informationally efficient at extremely short horizons (5–30 minutes) that are comparable to mature conventional markets. These results are robust to three methods, namely, ordinary least squares (OLS) autoregression, quantile autoregression, and variance ratio tests. Moreover, the EU-ETS futures prices impound the information content of economic activity in the major European markets at an extremely fast pace (5–30 minutes). The dynamic correlations obtained from the DCC-GARCH method suggest that the linkages between EU-ETS and economic activity remain intact, even when the effect of the pandemic is most severe. Overall, these results indicate that EU-ETS has substantially attained its stated objectives related to pricing efficiency. JEL classification: Q51, Q54, G14, G01, G10

Suggested Citation

  • Abhinava Tripathi & Charu Vadhava & Ravi Raushan Jha, 2026. "Pricing efficiency of European carbon futures market during the COVID-19 pandemic," Australian Journal of Management, Australian School of Business, vol. 51(1), pages 22-61, February.
    • Handle: RePEc:sae:ausman:v:51:y:2026:i:1:p:22-61
    DOI: 10.1177/03128962241293646
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    Keywords

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    JEL classification:

    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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