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Testing market efficiency in the EU carbon futures market

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  • Roselyne Joyeux
  • George Milunovich

Abstract

We use the cost-of-carry model to investigate the extent of market efficiency in the EU futures market for carbon dioxide allowances over the period of June 2005 to December 2007. We reject the cost-of-carry hypothesis for the entire data sample, but find some evidence of improvement in market efficiency over the period. Recursive estimates of some cost-of-carry model parameters start approaching their theoretical values when estimated on progressively smaller and more recent sub-samples.

Suggested Citation

  • Roselyne Joyeux & George Milunovich, 2010. "Testing market efficiency in the EU carbon futures market," Applied Financial Economics, Taylor & Francis Journals, vol. 20(10), pages 803-809.
  • Handle: RePEc:taf:apfiec:v:20:y:2010:i:10:p:803-809
    DOI: 10.1080/09603101003636220
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    References listed on IDEAS

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    1. Derek W. Bunn & Carlo Fezzi, 2007. "Interaction of European Carbon Trading and Energy Prices," Working Papers 2007.63, Fondazione Eni Enrico Mattei.
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    Cited by:

    1. Charles, Amélie & Darné, Olivier & Fouilloux, Jessica, 2013. "Market efficiency in the European carbon markets," Energy Policy, Elsevier, vol. 60(C), pages 785-792.
    2. repec:eee:enepol:v:107:y:2017:i:c:p:119-130 is not listed on IDEAS
    3. Jia, Jun-Jun & Xu, Jin-Hua & Fan, Ying, 2016. "The impact of verified emissions announcements on the European Union emissions trading scheme: A bilaterally modified dummy variable modelling analysis," Applied Energy, Elsevier, vol. 173(C), pages 567-577.
    4. Gil-Alana, Luis A. & Gupta, Rangan & de Gracia, Fernando Perez, 2016. "Modeling persistence of carbon emission allowance prices," Renewable and Sustainable Energy Reviews, Elsevier, vol. 55(C), pages 221-226.
    5. repec:spr:envpol:v:19:y:2017:i:4:d:10.1007_s10018-016-0171-4 is not listed on IDEAS
    6. Creti, Anna & Jouvet, Pierre-André & Mignon, Valérie, 2012. "Carbon price drivers: Phase I versus Phase II equilibrium?," Energy Economics, Elsevier, vol. 34(1), pages 327-334.
    7. Charles, Amélie & Darné, Olivier & Fouilloux, Jessica, 2011. "Testing the martingale difference hypothesis in CO2 emission allowances," Economic Modelling, Elsevier, vol. 28(1-2), pages 27-35, January.
    8. Marcel Gorenflo, 2013. "Futures price dynamics of CO 2 emission allowances," Empirical Economics, Springer, vol. 45(3), pages 1025-1047, December.
    9. Vicente Medina & Angel Pardo & Roberto Pascual, 2013. "Carbon Credits: Who is the Leader of the Pack?," International Journal of Energy Economics and Policy, Econjournals, vol. 3(3), pages 210-220.
    10. Eugenia Sanin, María & Violante, Francesco & Mansanet-Bataller, María, 2015. "Understanding volatility dynamics in the EU-ETS market," Energy Policy, Elsevier, vol. 82(C), pages 321-331.
    11. Fan, Ying & Jia, Jun-Jun & Wang, Xin & Xu, Jin-Hua, 2017. "What policy adjustments in the EU ETS truly affected the carbon prices?," Energy Policy, Elsevier, vol. 103(C), pages 145-164.
    12. repec:taf:applec:v:48:y:2016:i:51:p:4992-5007 is not listed on IDEAS
    13. Algieri, Bernardina & Kalkuhl, Matthias, 2014. "Back to the Futures: An Assessment of Commodity Market Efficiency and Forecast Error Drivers," Discussion Papers 187159, University of Bonn, Center for Development Research (ZEF).
    14. Philip, Dennis & Shi, Yukun, 2015. "Impact of allowance submissions in European carbon emission markets," International Review of Financial Analysis, Elsevier, vol. 40(C), pages 27-37.
    15. Philip, Dennis & Shi, Yukun, 2016. "Optimal hedging in carbon emission markets using Markov regime switching models," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 43(C), pages 1-15.

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