Market efficiency in the European carbon markets

Amélie Charles (1) , Olivier Darné (2) , Jessica Fouilloux (3)

1 Audencia Recherche
2 LEMNA - Laboratoire d'économie et de management de Nantes Atlantique
3 CREM - Centre de recherche en économie et management

In this paper, we study the relationship between futures and spot prices in the European carbon markets from the cost-of-carry hypothesis. The aim is to investigate the extent of efficiency market. The three main European markets (BlueNext, EEX and ECX) are analyzed during Phase II, covering the period from March 13, 2009 to January, 17, 2012. Futures contracts are found to be cointegrated with spot prices and interest rates for several maturities in the three CO2 markets. Results are similar when structural breaks are taken into account. According to individual and joint tests, the cost-of-carry model is rejected for all maturities and CO2 markets, implying that neither contract is priced according to the cost-of-carry model. The absence of the cost-of-carry relationship can be interpreted as an indicator of market inefficiency and may bring arbitrage opportunities in the CO2 market.

Mots clés: CO2 emission allowances; Cost-of-carry model; Market efficiency; Spot and futures prices

Domaines: Economies et finances

Amélie Charles, Olivier Darné, Jessica Fouilloux. Market efficiency in the European carbon markets. Energy Policy, 2013, 60, pp.785-792. ⟨10.1016/j.enpol.2013.05.036⟩. ⟨halshs-00846679⟩