Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/127309 
Authors: 
Year of Publication: 
2009
Series/Report no.: 
Discussion Paper Series No. 492
Publisher: 
University of Heidelberg, Department of Economics, Heidelberg
Abstract: 
This paper deals with the modeling of the relationship of European Union Allowance spot- and futures-prices within the second commitment period of the European Union Emission Trading Scheme. Based on high frequency data, we analyze causality in the first and the second conditional moments. To reveal long run price discovery we compute the common factor weights proposed by Schwarz and Szakmary (1994) and the information share proposed by Hasbrouck (1995) based on the estimated coefficients of a vector error correction model. To analyze the short run dynamics we perform Granger causalty tests. The GARCH-BEKK model introduced by Engle and Kroner (1995) is employed to analyze the volatility transmission structure. We identify the futures market to be the leader of the long run price discovery process whereas a bidirectional short run causality structure is observed. Furthermore we detect unidirectional volatility transmission from the futures to the spot market at highest frequencies.
Subjects: 
CO2 Emission Allowances
Causality
Volatility Transmission
Spot Prices
Futures Prices
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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