Modeling the European Carbon Futures Market. An Efficiency Test

摘要

The European Emissions Trading Scheme (EU ETS) forms the centerpiece of EU climate change policy. Within the new trading system, the right to emit a particular amount of CO_2 becomes a tradable commodity - called EU Allowances. We test an AR(1)-GARCH(1,1) model on these young markets and analyze the impact of National Allocation Plans (NAP) announcements on carbon prices, by applying an event study methodology that employs daily carbon futures returns. We find that the markets are not efficient as far as the correlation test is concerned, but the event study proves that, even if in the past returns reacted to Verification of Emissions (VER) announcements, the expectation building is functioning correctly since investors are able to predict the market dynamics.