How Integrated is the European Carbon Derivatives Market?

24 Pages Posted: 22 Jan 2016

See all articles by Paolo Mazza

Paolo Mazza

IESEG School of Management; LEM CNRS 9221

Mikael Petitjean

Université Polytechnique Hauts-de-France; Catholic University of Louvain (UCL) - Louvain Finance (LFIN)

Date Written: May 8, 2015

Abstract

We assess the integration dynamics on the European carbon futures market at both the intraday and daily levels. We focus on EUA futures contracts that can be traded on three trading platforms: the Intercontinental-European Climate Exchange (ICE-ECX), the NASDAQ OMX (formerly Nord Pool) and the European Energy Exchange (EEX). We analyze trading activity for three different contract maturities and find that the ECX and EEX platforms exhibit a reasonable level of integration. The price discovery process does not occur at the daily level but rather at the hourly frequency. We conclude that this market still needs to be closely monitored by the regulatory authorities given the high level of volatility, the fragile level of liquidity, the weaker interconnectedness of the OMX platform, and the lower level of integration at longer maturities.

Keywords: Carbon, derivatives, EU ETS, cointegration, volatility, futures

JEL Classification: G13, G14, E44

Suggested Citation

Mazza, Paolo and Petitjean, Mikael, How Integrated is the European Carbon Derivatives Market? (May 8, 2015). Finance Research Letters, Vol. 15, 2015, Available at SSRN: https://ssrn.com/abstract=2720366

Paolo Mazza

IESEG School of Management ( email )

3 Rue de la Digue
Office: A321
Lille, 59 59000
France

HOME PAGE: http://https://sites.google.com/site/paolomazzaphd/

LEM CNRS 9221 ( email )

Mikael Petitjean (Contact Author)

Université Polytechnique Hauts-de-France ( email )

IAE Valenciennes
Rue Emile Loubat
Famars, Hauts-de-France 59300
France

Catholic University of Louvain (UCL) - Louvain Finance (LFIN) ( email )

Voie du Roman Pays 34
Louvain-La-Neuve, 1348
Belgium

HOME PAGE: http://uclouvain.be/mikael.petitjean

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