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Title:The market microstructure of the European Climate Exchange PDF Logo
Authors:Mizrach, Bruce
Otsubo, Yoichi
Issue Date:2011
Series/Report no.:Working Papers, Department of Economics, Rutgers, the State University of New Jersey 2010,05
Abstract:This paper analyzes the market microstructure of the European Climate Exchange, the largest EU ETS trading venue. The ECX captures 2/3 of the screen traded market in EUA and more than 90% in CER. Trading volumes are active, with EUA volume doubling in 2009. Spreads range from € 0.02 to € 0.06 for EUA futures and from € 0.07 to € 0.18 for CER. Market impact estimates imply that an average trade will move the EUA market by € 0.0108 and the CER market € 0.0429. Both Granger-Gonzalo and Hasbrouck information shares imply that approximately 90% of price discovery is taking place in the ECX futures market. We find imbalances in the order book help predict returns for up to three days. A simple trading strategy that enters the market long or short when the order imbalance is strong is profitable even after accounting for spreads and market impact.
Subjects:carbon trading
market microstructure
bid-ask spread
market impact
information shares
order book imbalance
Persistent Identifier of the first edition:doi:10.2139/ssrn.1621340
Document Type:Working Paper
Appears in Collections:Working Papers, Department of Economics, Rutgers University

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