Emission Permits and the Announcement of Realized Emissions: Price Impact, Trading Volume, and Volatilities

Abstract

This paper investigates the impact of the yearly announcement of realized emissions on the European carbon permit market. We find that this event generally leads to significant absolute abnormal returns on the event day, which are accompanied by increased trading volumes and high intraday volatilities. To the contrary, trading is particularly calm on the days before the event, as suggested by significantly lower trading volumes and volatilities. The high event-day volatility is expected by the market and incorporated in emission permit option prices. In line with these significant market reactions, we provide evidence that the emissions announcement has an outstanding information content for the market compared to other relevant news events.

Keywords: emission permits, announcement effects, EU ETS

JEL Classification: G12, G13, G14, H23, Q54, Q56