The impact of regulatory changes on the efficiency of the phase II EU ETS European carbon futures

Andrew Lepone, Alex Sacco, Jin Young Yang

Research output: Contribution to journalArticlepeer-review

Abstract

This study investigates long-horizon weak form market efficiency in the Phase
II EU ETS (European Union Emissions Trading Scheme) Carbon Futures
Market. Using data that encompasses exchange-based (ECX) trades in Phase
I and Phase II ECX CFI futures contracts from January 1, 2008, to September
28, 2010, this study employs various tests of long horizon weak form market
efficiency including variance ratio tests, tests of trading rule profitability,
and serial correlation. In contrast to prior research that focuses on Phase I
EU ETS, this study finds evidence of a significant structural change to the EU
ETS from Phase I to Phase II, and supports the efficient market hypothesis
during Phase II (2008–2010). Results suggest that documented improvements
in market quality, increasing trading activity, and removal of Phase I market
frictions have fostered improvements in market efficiency into and during Phase
II.
Original languageEnglish
Article number1
Pages (from-to)1-25
Number of pages25
JournalReview of futures markets
Volume20
Issue number4
Publication statusPublished - 2012
Externally publishedYes

Keywords

  • market efficiency
  • carbon futures markets

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