Speculative and hedging activities in the European carbon market

Lucia, Julio J.; Mansanet-Bataller, María; Pardo, Á.

doi:10.1016/j.enpol.2014.11.014

Cited by 39 publications

(20 citation statements)

References 18 publications

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“…Interestingly, in comparison to other commodity markets, the relationship between prices of spot and futures contracts and convenience yields in the EU‐ETS has not been studied extensively. At the same time, as pointed out by, e.g., Benz and Hengelbrock (); Hitzemann et al (); Lucia et al (); Mizrach and Otsubo (), trading volume and liquidity in the

{CO}_{2}

futures market have increased significantly over recent years, emphasizing the importance of futures contracts also for the trading of emission allowances. However, as shown by Crossland et al (), despite its rapid evolution, the EU‐ETS is not informationally efficient yet.…”

Section: Introductionmentioning

confidence: 75%

“…In this study, we examine convenience yields in the EU‐ETS during the first Kyoto commitment period (2008–2012), which has been found by Lucia et al () to be the most speculative EU‐ETS phase to date. The connection between spot and futures prices as well as contango and backwardation market situations have been thoroughly investigated for commodities like oil, electricity, gas, or agricultural products, see, e.g., Bodie and Rosansky (); Chang (); Gibson and Schwartz (); Pindyck (); Schwartz and Smith (); Weron and Zator (), just to mention a few.…”

Section: Introductionmentioning

confidence: 99%

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Convenience Yields and Risk Premiums in the EU‐ETS—Evidence from the Kyoto Commitment Period

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Weron

2016

Journal of Futures Markets

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We examine convenience yields and risk premiums in the EU‐wide CO2 emissions trading scheme (EU‐ETS) during the first Kyoto commitment period (2008–2012). We find that the market has changed from initial backwardation to contango with significantly negative convenience yields in futures contracts. We further examine the impact of interest rate levels in the Eurozone, the increasing level of surplus allowances and banking, as well as returns, variance, or skewness in the EU‐ETS spot market. Our findings suggest that the drop in risk‐free rates during and after the financial crisis has impacted on the deviation from the cost‐of‐carry relationship for emission allowances (EUA) futures contracts. Our results also illustrate a negative relationship between convenience yields and the increasing level of inventory during the first Kyoto commitment period, providing an explanation for the high negative convenience yields. Finally, we find that market participants are willing to pay an additional risk premium in the futures market for a hedge against increased volatility in EUA prices. Overall, our results contribute to the literature on the determinants and empirical properties of convenience yields and risk premiums for this relatively new class of assets. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 36:587–611, 2016

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Section: Introductionmentioning

confidence: 75%

Section: Introductionmentioning

confidence: 99%

Convenience Yields and Risk Premiums in the EU‐ETS—Evidence from the Kyoto Commitment Period

Trück

Weron

2016

Journal of Futures Markets

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“…The change in open interest during period t is a measure of net positions being opened or closed each day and held overnight and is used to capture hedging activity. Since the change of open interest during period t is in the range [−T V t , +T V t ], the hedging ratio can only take on values in the range of [1 and -1] (Lucia et al, 2015). While a positive value of the hedging ratio indicates that the number of opened positions has exceeded the number of closed positions, a negative value implies that the number of closed positions is greater than the number of opened ones.…”

Section: Volume (T V T ) Divided By End-of-day Open Interest (Oi T )mentioning

confidence: 99%

“…Only Lucia et al (2015) apply both the speculation (1) and hedging ratios (2) to explore the relative importance of speculative activity versus hedging activity in the European carbon futures market. The authors show the different dynamics of speculative behaviour during three phases of the European Union Emission Trading Scheme.…”

Section: Volume (T V T ) Divided By End-of-day Open Interest (Oi T )mentioning

confidence: 99%

Speculative Activity and Returns Volatility of Chinese Major Agricultural Commodity Futures

2017

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“…Fan [41] calculated hedge ratios and investigated the hedging effectiveness in the EU ETS. A time series analysis demonstrated that most speculative activities takes place in the front contract, however, the hedging demand concentrated in the second-to-deliver futures contract [42].…”

Section: Introductionmentioning

confidence: 99%

The tail dependence of the carbon markets: The implication of portfolio management

Zhang

2020

PLoS ONE

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Emission trading scheme (ETS), the most popular market-based instrument, is widely used to solve carbon emission problems in the world. With the development of carbon market, carbon asset has been a popular financial product to invest and the risk management becomes important for government, regulated enterprises and other investors. As carbon prices have tail characteristics, this paper explores the extremal risks between carbon markets in US, Europe and China using tail dependence correlation coefficients. The empirical analysis demonstrates the tail dependence structure between carbon markets in US. and Europe is the same sign, which indicates that it is unwise to hold these two carbon assets as a portfolio. Moreover, the co-movements between European Union Emission Trade Scheme (EU ETS) and China's carbon markets are partly significant, and the operation mechanisms in China should be improved. In addition, the tail dependence test among the carbon pilots in China shows diversity. Hubei carbon trading pilot, located in central China, has extremal dependence with all other selected pilots for its regulatory program operation. The findings give insight to the carbon market regulars to improve the operation mechanism and are also useful for the investors to manage their portfolios, policymakers to make practically applicable regulations, and relevant organizations to develop procedures.

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Speculative and hedging activities in the European carbon market

Cited by 39 publications

References 18 publications

Convenience Yields and Risk Premiums in the EU‐ETS—Evidence from the Kyoto Commitment Period

Convenience Yields and Risk Premiums in the EU‐ETS—Evidence from the Kyoto Commitment Period

Speculative Activity and Returns Volatility of Chinese Major Agricultural Commodity Futures

The tail dependence of the carbon markets: The implication of portfolio management

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