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Modeling and Explaining the Dynamics of European Union Allowance Prices at High-Frequency


Christian Conrad


University of Heidelberg - Faculty of Economics and Social Studies

Daniel Rittler


University of Heidelberg - Alfred Weber Institute for Economics

Waldemar Rotfuss


Centre for European Economic Research (ZEW)

March 12, 2010

University of Heidelberg, Department of Economics, Discussion Paper No. 497

Abstract:     
In this paper we model the adjustment process of European Union Allowance (EUA) prices to the releases of announcements at high-frequency controlling for intraday periodicity, volatility clustering and volatility persistence. We find that the high-frequency EUA price dynamics are very well captured by a fractionally integrated asymmetric power GARCH process. The decisions of the European Commission on second National Allocation Plans have a strong and immediate impact on EUA prices. On the other hand, our results suggest that EUA prices are only weakly connected to indicators about the future economic development as well as the current economic activity.

Number of Pages in PDF File: 27

Keywords: EU ETS, EUA, Second NAPs, Announcement Effects, Price Formation, Long Memory

JEL Classification: C22, G13, G14, Q50

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Date posted: March 15, 2010  

Suggested Citation

Conrad, Christian and Rittler, Daniel and Rotfuss, Waldemar, Modeling and Explaining the Dynamics of European Union Allowance Prices at High-Frequency (March 12, 2010). University of Heidelberg, Department of Economics, Discussion Paper No. 497 . Available at SSRN: http://ssrn.com/abstract=1569494 or http://dx.doi.org/10.2139/ssrn.1569494

Contact Information

Christian Conrad (Contact Author)
University of Heidelberg - Faculty of Economics and Social Studies ( email )
Bergheimer Strasse 58
Heidelberg, D-69115
Germany
+49 (0)6221 54 3173 (Phone)
HOME PAGE: http://www.uni-heidelberg.de/fakultaeten/wiso/awi/professuren/empwirtfor/christianconrad.html
Daniel Rittler
University of Heidelberg - Alfred Weber Institute for Economics ( email )
Bergheimer Straße 58
Heidelberg, D-69115
Germany
+49 6221 54 2908 (Phone)
Waldemar Rotfuss
Centre for European Economic Research (ZEW) ( email )
P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany
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