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

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

27 Pages Posted: 15 Mar 2010  

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)

Multiple version iconThere are 2 versions of this paper

Date Written: March 12, 2010

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.

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

JEL Classification: C22, G13, G14, Q50

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: https://ssrn.com/abstract=1569494 or http://dx.doi.org/10.2139/ssrn.1569494

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 Stra├če 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

Paper statistics

Downloads
57
Rank
227,861
Abstract Views
689