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CO2 Prices and Portfolio Management during Phase II of the EU ETS

Author

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  • Maria Mansanet-Bataller

    (Department of Financial Economics, Faculty of Economics, University of Valencia)

Abstract

Since the launch of the European Union Emission Trading Scheme (EU ETS), the interest in the trade of EUAs is constantly increasing among academics and market participants. The objective of this article is twofold: (i) a detailed description of this new market is provided for portfolio managers, and (ii) a comprehensive study of the implications of including Phase II EUAs in diversified portfolios is undertaken using as expected returns both historical and risk-adjusted returns. The results show that the opportunity set do not vary if we consider historical returns and that if we take into account risk-adjusted returns the efficient set only increases if the investor takes a short position in Phase II EUAs.

Suggested Citation

  • Maria Mansanet-Bataller, 2011. "CO2 Prices and Portfolio Management during Phase II of the EU ETS," Working Papers 1101, Chaire Economie du climat.
    • Handle: RePEc:cec:wpaper:1101
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    References listed on IDEAS

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    2. Panagiotis G. Papaioannou & George P. Papaioannou & Kostas Siettos & Akylas Stratigakos & Christos Dikaiakos, 2017. "Dynamic Conditional Correlation between Electricity and Stock markets during the Financial Crisis in Greece," Papers 1708.07063, arXiv.org.
    3. Palao, Fernando & Pardo, Ángel, 2021. "The inconvenience yield of carbon futures," Energy Economics, Elsevier, vol. 101(C).
    4. Mazza, Paolo & Petitjean, Mikael, 2015. "How integrated is the European carbon derivatives market?," Finance Research Letters, Elsevier, vol. 15(C), pages 18-30.
    5. Cummins, Mark, 2013. "EU ETS market interactions: The case for multiple hypothesis testing approaches," Applied Energy, Elsevier, vol. 111(C), pages 701-709.
    6. Yinpeng Zhang & Zhixin Liu & Xueying Yu, 2017. "The Diversification Benefits of Including Carbon Assets in Financial Portfolios," Sustainability, MDPI, vol. 9(3), pages 1-13, March.
    7. repec:crb:wpaper:2023-01 is not listed on IDEAS

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    Keywords

    CO2 Futures; Portfolio Management;

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