Carbon Emissions Pricing: Linkages Between EU ETS Spot and Future Prices and Completeness of EU ETS Market

IF 1.2 Q3 BUSINESS, FINANCE Journal of Emerging Market Finance Pub Date : 2024-06-02 DOI:10.1177/09726527241248003

Saikat Mondal, Rudra P. Pradhan, Vinodh Madhavan, Debaleena Chatterjee, Ann Mary Varghese

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Abstract

The study examines the relationship and linkages between spot and future prices of European Union Emission Trading Systems (EU-ETS) during 2019–2021. Dynamic conditional correlation specification of multivariate generalized autoregressive conditional heteroskedasticity (MGARCH) model was employed to examine the time-varying correlation between spot and future prices. Also, vector autoregression mean model and MGARCH-Baba-Engle-Kroner-Kraft volatility model was jointly estimated to model the spillover between EU ETS spot and future prices in the first and second moments. Lastly, we utilize the variance-covariance matrix of joint mean-variance model estimation to derive the optimal conditional hedge ratio as well as the hedge effectiveness of EU ETS future contracts. Our findings reveal a high conditional correlation and significant spillover between carbon spot and future markets in EU. Further, our study uncovers a high degree of hedge effectiveness for EU ETS future contracts. This is possibly the first study that examines the linkages between EU ETS spot and future prices pertaining to the recent transition stage of phase III and the initial stage of ongoing phase IV of the ETS market. Our findings pinpoint to ETS markets becoming more complete and in turn offering optimal hedging avenues.JEL Codes: G15, C58, Q38

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碳排放定价：欧盟排放交易计划现货价格与未来价格之间的联系以及欧盟排放交易计划市场的完整性

本研究探讨了2019-2021年期间欧盟排放交易体系（EU-ETS）现货价格和期货价格之间的关系和联系。研究采用了多变量广义自回归条件异方差（MGARCH）模型的动态条件相关性规范来检验现货价格和期货价格之间的时变相关性。此外，我们还联合估计了向量自回归均值模型和 MGARCH-Baba-Engle-Kroner-Kraft 波动率模型，以模拟欧盟排放交易计划现货和期货价格在第一和第二时刻的溢出效应。最后，我们利用联合均值-方差模型估计的方差-协方差矩阵，得出最优条件对冲比率以及欧盟排放交易计划期货合约的对冲效果。我们的研究结果表明，欧盟碳现货市场和期货市场之间存在高度的条件相关性和显著的溢出效应。此外，我们的研究还揭示了欧盟排放交易计划期货合约的高度套期保值有效性。这可能是第一份研究欧盟碳排放交易计划现货和期货价格之间联系的研究报告，涉及欧盟碳排放交易计划市场第三阶段的近期过渡阶段和第四阶段的初期阶段。我们的研究结果表明，排放交易计划市场正变得更加完善，从而提供了最佳的套期保值途径：G15, C58, Q38

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来源期刊

Journal of Emerging Market Finance BUSINESS, FINANCE-

CiteScore

1.80

自引率

33.30%

发文量

期刊介绍： The Journal of Emerging Market Finance is a forum for debate and discussion on the theory and practice of finance in emerging markets. While the emphasis is on articles that are of practical significance, the journal also covers theoretical and conceptual aspects relating to emerging financial markets. Peer-reviewed, the journal is equally useful to practitioners and to banking and investment companies as to scholars.