Valuing Tradable Private Rights to Pollute the Public's Air

Kosobud, Richard F.; Stokes, Houston H.; Tallarico, Carol D.; Scott, Brian

doi:10.1108/eb043418

Cited by 20 publications

(16 citation statements)

References 3 publications

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“…This evidence partly contradicts an earlier study by Kosobud et al (2005) who found no statistically significant correlation between monthly returns of SO 2 emission allowance spot prices in the US and returns from various financial investments. As argued by the authors, this is due to the fact that the factors determining stock and bond prices differ substantially from those affecting emission permit ones.…”

Section: Evidence From the Futures Marketscontrasting

confidence: 77%

Modeling CO2 emission allowance prices and derivatives: Evidence from the European trading scheme

Daskalakis

Psychoyios

Markellos

2009

Journal of Banking & Finance

403

211

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Section: Evidence From the Futures Marketscontrasting

confidence: 77%

Modeling CO2 emission allowance prices and derivatives: Evidence from the European trading scheme

Daskalakis

Psychoyios

Markellos

2009

Journal of Banking & Finance

403

211

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“…Kosobud et al (2005) find no statistically significant correlations between monthly returns of SO 2 emission allowance prices in the US market and returns from various financial investments. Rising carbon prices, as a factor of production, could be related to additional costs and uncertainties for producers and consumers and might have an adverse effect on equity markets in general or equities of certain industries in particular.…”

Section: (Ii) Co 2 Price Driversmentioning

confidence: 65%

The Relationship between Carbon, Commodity and Financial Markets: A Copula Analysis*

2011

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This article applies different copulas to investigate the complex dependence structure between EU emission allowance (EUA) futures returns and those of other commodities, equity and energy indices. The analysis yields important insights into the relationship between carbon, commodities and financial markets. Firstly, we find a significant relationship between EUA returns and those of the other considered variables that is most appropriately modelled by a Gaussian and Student-t copula. These results contradict some earlier studies that report no statistically significant or even negative correlations between returns of emission allowances and other financial variables. Secondly, considering time-varying copulas shows that the estimated copula parameters are not constant over time. We find in particular that the dependence is stronger during the period of the financial crisis. In a Value-at-Risk (VaR) analysis, finally, we further illustrate the advantages of copula methods. In particular, the Student-t copula provides an appropriate quantification of VaR at different confidence levels while other models fail to specify the risk correctly. This analysis shows that ignoring the actual nature of dependence might lead to an underestimation of the risk for portfolios combining EUAs with commodities or equity investments.

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“…13 This of course is not very realistic but helps us to get a deeper understanding of ARTICLE IN PRESS 12 To see this, subtract V(t, x t ) from both sides of (2.6). 13 See the on-line appendix. the basic properties of solutions to our problem.…”

Section: Analytic Solution For Special Casementioning

confidence: 98%