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

Andrew Lepone; Alex Sacco; Jin Young Yang

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 journal › Article › peer-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 language	English
Article number	1
Pages (from-to)	1-25
Number of pages	25
Journal	Review of futures markets
Volume	20
Issue number	4
Publication status	Published - 2012
Externally published	Yes

Keywords

market efficiency
carbon futures markets

Cite this

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title = "The impact of regulatory changes on the efficiency of the phase II EU ETS European carbon futures",

abstract = "This study investigates long-horizon weak form market efficiency in the PhaseII EU ETS (European Union Emissions Trading Scheme) Carbon FuturesMarket. Using data that encompasses exchange-based (ECX) trades in PhaseI and Phase II ECX CFI futures contracts from January 1, 2008, to September28, 2010, this study employs various tests of long horizon weak form marketefficiency including variance ratio tests, tests of trading rule profitability,and serial correlation. In contrast to prior research that focuses on Phase IEU ETS, this study finds evidence of a significant structural change to the EUETS from Phase I to Phase II, and supports the efficient market hypothesisduring Phase II (2008–2010). Results suggest that documented improvementsin market quality, increasing trading activity, and removal of Phase I marketfrictions have fostered improvements in market efficiency into and during PhaseII.",

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author = "Andrew Lepone and Alex Sacco and Yang, {Jin Young}",

year = "2012",

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AU - Sacco, Alex

AU - Yang, Jin Young

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AB - This study investigates long-horizon weak form market efficiency in the PhaseII EU ETS (European Union Emissions Trading Scheme) Carbon FuturesMarket. Using data that encompasses exchange-based (ECX) trades in PhaseI and Phase II ECX CFI futures contracts from January 1, 2008, to September28, 2010, this study employs various tests of long horizon weak form marketefficiency including variance ratio tests, tests of trading rule profitability,and serial correlation. In contrast to prior research that focuses on Phase IEU ETS, this study finds evidence of a significant structural change to the EUETS from Phase I to Phase II, and supports the efficient market hypothesisduring Phase II (2008–2010). Results suggest that documented improvementsin market quality, increasing trading activity, and removal of Phase I marketfrictions have fostered improvements in market efficiency into and during PhaseII.

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JO - Review of futures markets

JF - Review of futures markets

SN - 1933-7116

IS - 4

M1 - 1

ER -

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

Abstract

Keywords

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