No abstract

No abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp08059.pdf Non-Technical SummaryThis paper constitutes -to our knowledge -the first econometric analysis on stock market effects of the EU Emission Trading Scheme. We analyse electricity stock return reactions to changes in EU Emission Allowance (EUA) prices, taking into account possible asymmetries in the relationship between EUA price changes and electricity stock returns, as well as country-and time-specific effects. Moreover, we test whether EUA return volatility and European electricity stock volatility are related. Our results suggest that EUA price increases (decreases) positively (negatively) affect stock returns from the most important electricity corporations covered by the EU ETS. In this respect, the electricity corporations considered are upvalued in case of an EUA appreciation, and downvalued in situations where the price of EU Emission Allowances falls. The effect differs from country to country: Amongst the electricity corporations considered, Spanish corporations are shown to exhibit a negative EUA-to-stock market relationship. In contrast, the effect is positive for corporations from other countries such as Germany and the UK. Stock markets do not seem to react differently to EUA appreciations in comparison to depreciations. Moreover, electricity stock return and EUA price change volatility are not shown to be positively related.Given these results, it becomes apparent that EU ETS effectively has an impact on financial markets and has economic consequences, affecting the value of the corporations covered. The first ETS phase seems to be marked at least to some extent by uncertainty of financial market agents concerning the importance of the newly created EU carbon market for the stock market: The EUA effect on electricity stocks is shown to vary over time, being especially high during the EUA market shock in early 2006. Such a "premium" on the EUA effect could be based on the exceptionally high attention of the general public (and seemingly also of stock market agents) to the carbon market at that time. The fact that EUA price changes positively affect European electricity stocks (at least for most countries analysed) is the consequence of fully rational electricity pricing under a grandfathering allocation rule if pass-through for costs created by the ETS is possible. This result, however, calls into question free allowance allocation to these corporations,...

No abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp08059.pdf Non-Technical SummaryThis paper constitutes -to our knowledge -the first econometric analysis on stock market effects of the EU Emission Trading Scheme. We analyse electricity stock return reactions to changes in EU Emission Allowance (EUA) prices, taking into account possible asymmetries in the relationship between EUA price changes and electricity stock returns, as well as country-and time-specific effects. Moreover, we test whether EUA return volatility and European electricity stock volatility are related. Our results suggest that EUA price increases (decreases) positively (negatively) affect stock returns from the most important electricity corporations covered by the EU ETS. In this respect, the electricity corporations considered are upvalued in case of an EUA appreciation, and downvalued in situations where the price of EU Emission Allowances falls. The effect differs from country to country: Amongst the electricity corporations considered, Spanish corporations are shown to exhibit a negative EUA-to-stock market relationship. In contrast, the effect is positive for corporations from other countries such as Germany and the UK. Stock markets do not seem to react differently to EUA appreciations in comparison to depreciations. Moreover, electricity stock return and EUA price change volatility are not shown to be positively related.Given these results, it becomes apparent that EU ETS effectively has an impact on financial markets and has economic consequences, affecting the value of the corporations covered. The first ETS phase seems to be marked at least to some extent by uncertainty of financial market agents concerning the importance of the newly created EU carbon market for the stock market: The EUA effect on electricity stocks is shown to vary over time, being especially high during the EUA market shock in early 2006. Such a "premium" on the EUA effect could be based on the exceptionally high attention of the general public (and seemingly also of stock market agents) to the carbon market at that time. The fact that EUA price changes positively affect European electricity stocks (at least for most countries analysed) is the consequence of fully rational electricity pricing under a grandfathering allocation rule if pass-through for costs created by the ETS is possible. This result, however, calls into question free allowance allocation to these corporations,...