EU Emission Allowances and the Stock Market: Evidence from the Electricity Industry

22 Pages Posted: 1 Sep 2008

See all articles by Ulrich Oberndorfer

Ulrich Oberndorfer

ZEW – Leibniz Centre for European Economic Research

Date Written: August 2008

Abstract

This paper constitutes - to our best knowledge - the first econometric analysis on stock market effects of the EU Emission Trading Scheme (EU ETS). Our results suggest that EU Emission Allowance (EUA) price developments matter to the stock performance of electricity firms: EUA price changes and stock returns of the most important European electricity corporations are shown to be positively related. This effect does not work asymmetrically, so that stock markets do not seem to react differently to EUA appreciations in comparison to depreciations. The carbon market effect is shown to be both time- and country-specific: It is particularly strong for the period of EUA market shock in early 2006, and differs with respect to the countries where the electricity corporations analysed are headquartered. Stock market reactions to EUA volatility could not be shown.

Keywords: EU ETS, electricity stocks, asset pricing

JEL Classification: Q48, Q43, G12, C13

Suggested Citation

Oberndorfer, Ulrich, EU Emission Allowances and the Stock Market: Evidence from the Electricity Industry (August 2008). ZEW - Centre for European Economic Research Discussion Paper No. 08-059, Available at SSRN: https://ssrn.com/abstract=1261855 or http://dx.doi.org/10.2139/ssrn.1261855

Ulrich Oberndorfer (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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