Risk Aversion and Institutional Information Disclosure on the European Carbon Market: A Case-Study of the 2006 Compliance Event

Energy Policy, Forthcoming

45 Pages Posted: 8 Apr 2008 Last revised: 24 May 2014

See all articles by Julien Chevallier

Julien Chevallier

University of Paris 8 Vincennes-Saint Denis

Florian Ielpo

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES); Unigestion

Ludovic Mercier

affiliation not provided to SSRN

Date Written: 2008

Abstract

This article evaluates the impact of the 2006 compliance event on changes in investors' risk aversion on the European Carbon Market using the newly available option prices dataset. Thus, we aim at capturing the specific event that occurred on April 2007 as the European Commission disclosed the 2006 verified emissions data. Following the methodology existing for stock indices, we recover empirically risk aversion adjustments on the period 2006-2007 by estimating first the risk-neutral distribution from option prices and second the actual distribution from futures on the European Climate Exchange. Our results show evidence of a dramatic change in the market perception of risk around the 2006 yearly compliance event that has not been assessed yet.

Keywords: EU ETS, Risk Aversion, Option Prices, Futures Prices

JEL Classification: C14, G14, Q54

Suggested Citation

Chevallier, Julien and Ielpo, Florian and Mercier, Ludovic, Risk Aversion and Institutional Information Disclosure on the European Carbon Market: A Case-Study of the 2006 Compliance Event (2008). Energy Policy, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1117184 or http://dx.doi.org/10.2139/ssrn.1117184

Julien Chevallier (Contact Author)

University of Paris 8 Vincennes-Saint Denis ( email )

Paris
France

Florian Ielpo

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES) ( email )

106-112 Boulevard de l'hopital
106-112 Boulevard de l'Hôpital
Paris Cedex 13, 75647
France

Unigestion ( email )

8c, avenue de Champel CP 387
CP 387
Genève 12, CH 1211
Switzerland

Ludovic Mercier

affiliation not provided to SSRN ( email )

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