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Price Discovery and Trading after Hours: New Evidence from the World's Largest Carbon Exchange

Author

Listed:
  • Gbenga Ibikunle
  • Andros Gregoriou
  • Naresh R. Pandit

Abstract

We investigate the impact of after-hours trading on magnitude and timing of price discovery over the close-to-close period on the world's largest carbon trading platform, the European Climate Exchange (ECX). Low-volume trading in carbon financial instruments can lead to relatively high levels of price discovery, but the generated pricing has low efficiency levels. This is associated with high levels of informed trades and low levels of liquidity trades. Our results show higher trading volume per minute and greater price efficiency for after hours when compared with regular trading hours. As a result of a higher proportion of informed trades, adverse selection costs for trades after hours are significantly larger than those for trades during the regular trading day .

Suggested Citation

  • Gbenga Ibikunle & Andros Gregoriou & Naresh R. Pandit, 2013. "Price Discovery and Trading after Hours: New Evidence from the World's Largest Carbon Exchange," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 20(3), pages 421-445, November.
  • Handle: RePEc:taf:ijecbs:v:20:y:2013:i:3:p:421-445
    DOI: 10.1080/13571516.2013.782986
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    References listed on IDEAS

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    1. Alexandre Kossoy & Philippe Ambrosi, "undated". "State and Trends of the Carbon Market 2010," World Bank Other Operational Studies 13401, The World Bank.
    2. Nicholas Linacre & Alexandre Kossoy & Philippe Ambrosi, "undated". "State and Trends of the Carbon Market 2011," World Bank Other Operational Studies 13400, The World Bank.
    3. Mizrach, Bruce & Otsubo, Yoichi, 2014. "The market microstructure of the European climate exchange," Journal of Banking & Finance, Elsevier, vol. 39(C), pages 107-116.
    4. repec:wbk:wboper:13399 is not listed on IDEAS
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    Cited by:

    1. repec:spr:envpol:v:19:y:2017:i:4:d:10.1007_s10018-016-0171-4 is not listed on IDEAS
    2. Rannou, Yves & Barneto, Pascal, 2016. "Futures trading with information asymmetry and OTC predominance: Another look at the volume/volatility relations in the European carbon markets," Energy Economics, Elsevier, vol. 53(C), pages 159-174.
    3. Ibrahim, Boulis Maher & Kalaitzoglou, Iordanis Angelos, 2016. "Why do carbon prices and price volatility change?," Journal of Banking & Finance, Elsevier, vol. 63(C), pages 76-94.
    4. Medina, Vicente & Pardo, Ángel & Pascual, Roberto, 2014. "The timeline of trading frictions in the European carbon market," Energy Economics, Elsevier, vol. 42(C), pages 378-394.

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