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Testing the Martingale Difference Hypothesis in the EU ETS Markets for the CO2 Emission Allowances: Evidence from Phase I and Phase II

Author

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  • Amélie Charles

    (Audencia Recherche - Audencia Business School)

  • Olivier Darné

    (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - IEMN-IAE Nantes - Institut d'Économie et de Management de Nantes - Institut d'Administration des Entreprises - Nantes - UN - Université de Nantes)

  • Jessica Fouilloux

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

Abstract

This study examines the martingale difference hypothesis (MDH) for the market of carbon emission allowances within the European Union Emission Trading Scheme (EU ETS) during the Phase I and the Phase II, using both daily and weekly data over the period 2005--2009. The weak-form efficient market hypothesis for spot prices negotiated on BlueNext, European Energy Exchange and NordPool is tested with new variance ratio tests developed by Kim (2009). For the Phase I, the results show that these three markets of the European Union allowances seems to be efficiency, except after the European Commission announcements of stricter Phase II allocation in October 2006. Finally, we find that the CO2 spot prices seem to be weak-form efficiency during the Phase II since the MDH is failed to reject from both daily and weekly data.

Suggested Citation

  • Amélie Charles & Olivier Darné & Jessica Fouilloux, 2010. "Testing the Martingale Difference Hypothesis in the EU ETS Markets for the CO2 Emission Allowances: Evidence from Phase I and Phase II," Working Papers hal-00473727, HAL.
    • Handle: RePEc:hal:wpaper:hal-00473727
    Note: View the original document on HAL open archive server: https://hal.science/hal-00473727
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    2. Xiting Gong & Sean X. Zhou, 2013. "Optimal Production Planning with Emissions Trading," Operations Research, INFORMS, vol. 61(4), pages 908-924, August.

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