Why do carbon prices and price volatility change?

Boulis Maher Ibrahim, Iordanis Kalaitzoglou

Research output: Contribution to journalArticle

16 Citations (Scopus)
59 Downloads (Pure)

Abstract

An asymmetric information microstructural pricing model is proposed in which price responses to information and liquidity vary with every transaction. Bid–ask quotes and price components account for learning by incorporating changing expectations of the rate of transacted volume (trading intensity) and the risk level of incoming trades. Analysis of European carbon futures transactions finds expected trading intensity to simultaneously increase the information component and decrease the liquidity component of price changes, but at different rates. This explains some conflicting results in prior literature. Further, the expected persistence in trading intensity explains the majority of the autocorrelations in the level and the conditional variance of price change; helps predict hourly patterns in returns, variance and the bid–ask spread; and differentiates the price impact of buy versus sell and continuing versus reversing trades.
Original languageEnglish
Pages (from-to)76-94
Number of pages19
JournalJournal of Banking and Finance
Volume63
Early online date18 Nov 2015
DOIs
Publication statusPublished - Feb 2016

Keywords

  • CO2 emission allowances
  • Market microstructure
  • Duration
  • liquidity
  • price discovery

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)
  • Energy(all)

Fingerprint Dive into the research topics of 'Why do carbon prices and price volatility change?'. Together they form a unique fingerprint.

Cite this