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Lost in the crowd! Pricing carbon at the age of algorithms

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  • I. Kalaitzoglou

    (Audencia Business School)

Abstract

This work investigates crowdedness in (H)igh (F)requency (T)rading (HFT) in the EU ETS. The empirical findings report a systematic crowdedness-related mispricing, which is observed only in algorithmic trading. While this mispricing is relatively small on a per trade basis, it is persistent and it does not disappear with more capital. Consequently, it can accumulate rapidly, reaching up to 4 % of trading value and potentially leading to market failures such as flash crashes and price spikes. Existing regulatory measures, such as the MiFID II trading rules, mitigate this effect only partially. This suggests that transparency alone is not sufficient in mitigating the risk of market failures and that some kind of speed monitoring is needed.

Suggested Citation

  • I. Kalaitzoglou, 2026. "Lost in the crowd! Pricing carbon at the age of algorithms," Post-Print hal-05382010, HAL.
    • Handle: RePEc:hal:journl:hal-05382010
    DOI: 10.1016/j.irfa.2025.104761
    Note: View the original document on HAL open archive server: https://hal.science/hal-05382010v1
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