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Modeling and Explaining the Dynamics of European Union Allowance Prices at High-Frequency

Author Info

  • Conrad, Christian
  • Rittler, Daniel
  • Rotfuß, Waldemar

Abstract

In this paper we model the adjustment process of European Union Allowance (EUA) prices to the releases of announcements at high-frequency controlling for intraday periodicity, volatility clustering and volatility persistence. We find that the high-frequency EUA price dynamics are very well captured by a fractionally integrated asymmetric power GARCH process. The decisions of the European Commission on second National Allocation Plans have a strong and immediate impact on EUA prices. On the other hand, our results suggest that EUA prices are only weakly connected to indicators about the future economic development as well as the current economic activity.

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Paper provided by University of Heidelberg, Department of Economics in its series Working Papers with number 0497.

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Date of creation: 30 Mar 2010
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Handle: RePEc:awi:wpaper:0497
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Keywords: EU ETS; EUA; Second NAPs; Announcement Effects; Price Formation;

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Find related papers by JEL classification:
  • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
  • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
  • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
  • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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