Futures Price Dynamics of CO2 Emission Certificates - An Empirical Analysis

31 Pages Posted: 1 Nov 2006 Last revised: 17 Feb 2014

See all articles by Michael Wolfgang Wagner

Michael Wolfgang Wagner

University of Karlsruhe (TH)

Marliese Uhrig-Homburg

Karlsruhe Institute of Technology (KIT) - Institute for Finance

Date Written: 2009

Abstract

CO2 emission certificates are traded with increasing liquidity within the EU emissions trading scheme. Besides spot certificates, forwards and futures are also currently available OTC and on exchanges across Europe. The focus of this study is on the relationship between spot and futures markets in the EU ETS. A thorough empirical examination reveals evidence that spot and futures prices are linked by the cost-of-carry approach. After an initial period of market inefficiency, spot prices now seem to equal discounted futures prices within a trading period, which has implications for the pricing of derivative instruments on emission certificates. Moreover, we find that futures markets lead the price discovery process of CO2 emission certificates.

Keywords: CO2 emission certificates, price dynamics, CO2 forwards

JEL Classification: Q28, Q50, G13

Suggested Citation

Wagner, Michael Wolfgang and Uhrig-Homburg, Marliese, Futures Price Dynamics of CO2 Emission Certificates - An Empirical Analysis (2009). Journal of Derivatives, Vol. 17, No. 2, pp. 73-88, 2009. Available at SSRN: https://ssrn.com/abstract=941167

Michael Wolfgang Wagner (Contact Author)

University of Karlsruhe (TH) ( email )

Postbox
76128 Karlsruhe, DE 76128
Germany

Marliese Uhrig-Homburg

Karlsruhe Institute of Technology (KIT) - Institute for Finance ( email )

P.O. Box 6980
D-76049 Karlsruhe, DE
Germany
+49 721 6084 8183 (Phone)
+49 721 6084 8190 (Fax)

HOME PAGE: http://derivate.fbv.kit.edu/english/index.php

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