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http://hdl.handle.net/10419/59470
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| Title: | | The market microstructure of the European Climate Exchange  |
| 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 |
| JEL: | | G13 G32 E44 |
| 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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