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Informational efficiency of the US SO2 permit market

  • J. ALBRECHT

    ()

  • T. VERBEKE

    ()

  • M. DE CLERCQ

    ()

We test the information efficiency of the market for SO2 permits in the US. In order to do so, we perform a number of unit root tests and test if the changes in the SO2 permit price are serially correlated. Furthermore, we test if it would have been possible to earn a profit based on knowledge on the SO2 permit’s price history. The evidence presented in this paper suggests that this market is efficient from an informational point of view. Although one could question this hypothesis from a statistical point of view, economic significance suggests that this market is indeed efficient.

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File URL: http://wps-feb.ugent.be/Papers/wp_04_250.pdf
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Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 04/250.

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Length: 30 pages
Date of creation: Jun 2004
Date of revision:
Handle: RePEc:rug:rugwps:04/250
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Web page: http://www.ugent.be/eb

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  1. Burton G. Malkiel, 2003. "The Efficient Market Hypothesis and Its Critics," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 59-82, Winter.
  2. Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
  3. Perron, P., 1994. "Further Evidence on Breaking Trend Functions in Macroeconomic Variables," Cahiers de recherche 9421, Universite de Montreal, Departement de sciences economiques.
  4. Joskow, Paul L & Schmalensee, Richard & Bailey, Elizabeth M, 1998. "The Market for Sulfur Dioxide Emissions," American Economic Review, American Economic Association, vol. 88(4), pages 669-85, September.
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