Intraday Price Formation and Volatility in the European Union Emissions Trading Scheme: An Introductory Analysis

32 Pages Posted: 24 Jun 2009 Last revised: 27 Sep 2009

See all articles by Waldemar Rotfuss

Waldemar Rotfuss

ZEW – Leibniz Centre for European Economic Research

Date Written: 2009

Abstract

This paper presents an introductory analysis of price formation and volatility in the European Union Emissions Trading Scheme using highfrequency data. The results show that there are several anomalies both in the EUA spot and EUA futures market. First, price formation seems to take place on price sets that are coarser than those offered by the exchanges. Second, price formation in the EUA spot market (BlueNext) may be strongly affected by the price formation in the EUA futures market (ICE Futures). The typical 'U-shaped' pattern of intraday volatility, that is often observed in organized financial markets, is partly present in the EUA futures market. Similar to other classical financial markets, realized volatility estimates of daily EUA volatility seem to have a long-memory property.

Keywords: EUA, EU ETS, intraday price formation, realized volatility

JEL Classification: D43, G13, Q59

Suggested Citation

Rotfuss, Waldemar, Intraday Price Formation and Volatility in the European Union Emissions Trading Scheme: An Introductory Analysis (2009). ZEW - Centre for European Economic Research Discussion Paper No. 09-018. Available at SSRN: https://ssrn.com/abstract=1424368 or http://dx.doi.org/10.2139/ssrn.1424368

Waldemar Rotfuss (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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