Price Discovery and Trading after Hours: New Evidence from the World’s Largest Carbon Exchange

47 Pages Posted: 2 Nov 2011 Last revised: 17 Jan 2016

See all articles by Gbenga Ibikunle

Gbenga Ibikunle

University of Edinburgh; European Capital Markets Cooperative Research Centre

Andros Gregoriou

University of East Anglia

Naresh Pandit

University of East Anglia (UEA) - Norwich Business School

Date Written: August 30, 2011

Abstract

We investigate the impact of after-hours trading on magnitude and timing of price discovery over the close-to-close period on the world’s largest carbon trading platform, the European Climate Exchange (ECX). Low volume trading in carbon financial instruments can lead to relatively high levels of price discovery but the generated pricing has low efficiency levels. This is associated with high levels of informed trades and low levels of liquidity trades. Our results show higher trading volume per minute and greater price efficiency for after-hours when compared with regular trading hours. As a result of a higher proportion of informed trades, adverse selection costs for trades during the after-hours are significantly larger than those for trades during the regular trading-day.

Keywords: price discovery, information asymmetry, transaction costs, informational efficiency, carbon trading, climate change policy and regulation, EU-ETS

JEL Classification: G13, G15, G18, G19

Suggested Citation

Ibikunle, Gbenga and Gregoriou, Andros and Pandit, Naresh, Price Discovery and Trading after Hours: New Evidence from the World’s Largest Carbon Exchange (August 30, 2011). International Journal of the Economics of Business, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1952747 or http://dx.doi.org/10.2139/ssrn.1952747

Gbenga Ibikunle (Contact Author)

University of Edinburgh ( email )

Old College
South Bridge
Edinburgh, Scotland EH8 9JY
United Kingdom

European Capital Markets Cooperative Research Centre ( email )

Viale Pidaro 42
Pescara, 65121
Italy

Andros Gregoriou

University of East Anglia ( email )

Norwich Research Park
Norwich, Norfolk NR4 7TJ
United Kingdom

Naresh Pandit

University of East Anglia (UEA) - Norwich Business School ( email )

Norwich
NR4 7TJ
United Kingdom

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