Are the European carbon markets efficient?

George Daskalakis, Raphael-Nicholas Markellos

Research output: Contribution to journalArticle

Abstract

This paper examines the efficiency of the European market for carbon dioxide emission allowances. To this end, spot and futures market data are analyzed from Powernext, Nord Pool and ECX, the three main exchanges under the European Union Emission Trading Scheme (EU ETS). The methodology employs econometric testing procedures and trading strategies based on technical analysis rules and naive forecasts. The empirical results suggest that the behavior of the markets under consideration is not consistent with weak market efficiency. This could be due to the immaturity of the EU ETS and to the restrictions imposed on short-selling and on "banking" of emission allowances. The results are particularly important for emission-intensive firms, policy makers, and risk managers and for active or passive investors in the emerging class of energy and carbon hedge funds.
Original languageEnglish
Pages (from-to)103-128
JournalReview of Futures Markets
Volume17
Issue number2
Publication statusPublished - 2008

Keywords

  • European carbon markets
  • Efficiency
  • European Union emission trading scheme

Cite this