Futures Price Dynamics of CO2 Emission Certificates - An Empirical Analysis

Wagner, Michael Wolfgang; Uhrig-Homburg, Marliese

Download This Paper

Open PDF in Browser

Add Paper to My Library

Futures Price Dynamics of CO2 Emission Certificates - An Empirical Analysis

Journal of Derivatives, Vol. 17, No. 2, pp. 73-88, 2009

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

See all articles by Michael Wolfgang Wagner

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: 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