This paper analyzes the market microstructure of the European Climate Exchange, the largest EU ETS trading venue. The ECX captures 2/3 of the screen traded market in EUA and more than 90% in CER. Volume growth has averaged 277% in EUA between 2005 and 2009 and 724% in CER since 2007. Spreads range from €0.0188 to €0.0406 for EUA and €0.0276 to €0.0796 for CER. The median proportion of the spread due to adverse selection reaches 76% for EUA and 75% for CER. Realized volatility, bid-ask spreads and adverse selection costs decline with verified emission releases. Market impact estimates imply that an average trade will move the EUA market by 1.06 euro centimes and the CER market 1.45. The ECX is providing between 75% and 88% of price discovery for EUA trading and between 64% and 72% for CER. We find imbalances in the order book help predict returns for up to three days. A simple trading strategy that enters the market long or short when the order imbalance is strong is profitable even after accounting for spreads and market impact.
{"title":"The Market Microstructure of the European Climate Exchange","authors":"Bruce Mizrach, Yoichi Otsubo","doi":"10.2139/ssrn.1621340","DOIUrl":"https://doi.org/10.2139/ssrn.1621340","url":null,"abstract":"This paper analyzes the market microstructure of the European Climate Exchange, the largest EU ETS trading venue. The ECX captures 2/3 of the screen traded market in EUA and more than 90% in CER. Volume growth has averaged 277% in EUA between 2005 and 2009 and 724% in CER since 2007. Spreads range from €0.0188 to €0.0406 for EUA and €0.0276 to €0.0796 for CER. The median proportion of the spread due to adverse selection reaches 76% for EUA and 75% for CER. Realized volatility, bid-ask spreads and adverse selection costs decline with verified emission releases. Market impact estimates imply that an average trade will move the EUA market by 1.06 euro centimes and the CER market 1.45. The ECX is providing between 75% and 88% of price discovery for EUA trading and between 64% and 72% for CER. We find imbalances in the order book help predict returns for up to three days. A simple trading strategy that enters the market long or short when the order imbalance is strong is profitable even after accounting for spreads and market impact.","PeriodicalId":366242,"journal":{"name":"SRPN: Carbon Trading (Socially) (Topic)","volume":"3 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2013-07-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129984142","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This case describes how carbon credits are created via planting Mallee Eucalypt trees by CO2 AUSTRALIA. The case provides useful background to go along with the technical note "Carbon Credit Markets" (UVA-F-1583), which discusses in greater detail the regulatory frameworks as well as the various mechanisms that exist to allow carbon credit creation and trading.
{"title":"Co2 Australia—The Case for Carbon Credits","authors":"G. Allayannis, Susheel K Tenguria","doi":"10.2139/ssrn.1419271","DOIUrl":"https://doi.org/10.2139/ssrn.1419271","url":null,"abstract":"This case describes how carbon credits are created via planting Mallee Eucalypt trees by CO2 AUSTRALIA. The case provides useful background to go along with the technical note \"Carbon Credit Markets\" (UVA-F-1583), which discusses in greater detail the regulatory frameworks as well as the various mechanisms that exist to allow carbon credit creation and trading.","PeriodicalId":366242,"journal":{"name":"SRPN: Carbon Trading (Socially) (Topic)","volume":"26 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2009-06-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131461096","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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