Modeling and Explaining the Dynamics of European Union Allowance Prices at High-Frequency
University of Heidelberg - Faculty of Economics and Social Studies
University of Heidelberg - Alfred Weber Institute for Economics
Centre for European Economic Research (ZEW)
March 12, 2010
University of Heidelberg, Department of Economics, Discussion Paper No. 497
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
Date posted: March 15, 2010
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