The time-varying effects of liquidity and market efficiency of the European Union carbon market: Evidence from the TVP-SVAR-SV approach

Zhong, Meirui; Zhang, Rui; Ren, Xiaohang

doi:10.1016/j.eneco.2023.106708

Cited by 8 publications

(3 citation statements)

References 114 publications

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“…As a consequence, futures can be used for speculation and risk hedging and are suitable for those who have no interest in physical delivery. On top of energy-intensive firms, the market participants also consist of financial institutions in large and medium scale, whose trading activities out of arbitrage, hedging or speculation inject enormous liquidity into the EU futures market and thus conduce to the processing of price information (Chordia et al, 2008;Ibikunle et al, 2016;Zhong et al, 2023). In Eq.…”

Section: Discussionmentioning

confidence: 99%

Re-examining the efficiency of the EU carbon futures market in phase Ⅱ: price discovery and intertemporal arbitrage

Xi,

Pan,

Qin

2023

Front. Energy Res.

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Introduction: Carbon futures market plays an important role in energy conservation and emission reduction of energy-intensive firms, and its efficiency is largely reflected by the dynamic relationship between carbon spot and futures prices. Even though the EU carbon futures market has undergone three phases, its efficiency in Phase Ⅱ still contains much controversy.Methods: Based on the cost-of-carry model, we apply linear and nonlinear Granger causality test, vector error correction model and threshold vector error correction model to re-examine the efficiency of the carbon futures market in the second phase of the European Union Emissions Trading System from the perspectives of price discovery and intertemporal arbitrage.Results: i) the EU carbon futures market has the function of price discovery by virtue of the broad scope of participants and the consequent huge liquidity, suggesting that the carbon futures price can predict the carbon spot price; ii) the coefficient requirement of the cost-of-carry model is satisfied and the relationship between the European Union Allowance (EUA) futures and spot prices is consistent with the cost-of-carry model, which indicates that the former is an unbiased estimator of the latter and an equilibrium relationship exists between the two prices so that the carbon futures market is efficient in the long run; iii) however, the carbon futures market shows inefficiency in the short run since it has an error correction function only when the basis is less than −0.07 and the carbon futures price indicates a remarkably slow adjustment to the long-run equilibrium when there is deviation, which can be ascribed to the global financial crisis as well as its aftermath in 2008.Discussion: In the context of global warming and carbon neutrality, the results of this paper are of great significance to emitters, arbitrageurs, hedgers and policymakers in emerging and young carbon markets.

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Section: Discussionmentioning

confidence: 99%

Re-examining the efficiency of the EU carbon futures market in phase Ⅱ: price discovery and intertemporal arbitrage

Xi,

Pan,

Qin

2023

Front. Energy Res.

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“…We aim to capture the time-varying impacts that structural shocks on m (u) have on u (πk) without dividing our full sample into subsamples. Indeed, compared to the constant parameters SVAR model, the TVP-SVAR models allow the detection of the changes in the responses' behaviour over time of the system to the identified structural shocks while conserving the full sample information specificity (Zhong et al 2023, 106708). The uncorrelatedness of the shocks allows us to identify impulse-response functions and rules out the presence of any omitted variables that enter multiple equations (Ghanem and Smith 2022).…”

Section: Time-varying Impulse-response Functionsmentioning

confidence: 99%

“…3 We follow standard procedures to estimate and identify SVAR models, as illustrated by Kilian and Lütkepohl (2017). The choice of 68% error bands is used in several contributions (see, among others, Blanchard and Perotti 2002;Kim 2020;Deleidi 2022;Zhong et al 2023). Furthermore, as Sims and Zha (1999) and Giordano et al (2007) pointed out, error bands corresponding to 0.68 probability are often more useful than 0.95 bands because they provide a more precise estimate of the true coverage probability.…”

Section: Notesmentioning

confidence: 99%

Critical globalisation: Productive capacity and capital productivity in the United States, 1945–2020

Pérez-Montiel,

Manera,

Navinés

et al. 2023

Econ. labour relat. rev.

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We study the dynamics of the profit rate of United States (US) non-financial resident firms between 1945 and 2020. The 1970s entailed the abandonment of industrial policy and the liberalisation and globalisation of markets. This left the US-resident productive sector at the mercy of an unstoppable growth of imports. These imports helped to contain inflation but cornered the US domestic market, which negatively affected the profit rate of non-financial resident firms. The increasing foreign competition forced US-resident firms to invest and increase their productive capacity. Such increasing productive capacity demanded higher market shares; however, US-resident firms continued to lose domestic and foreign markets. This explains the fall in the degree of productive capacity utilisation, capital productivity, and ultimately, the rate of profit since the 1980s.

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Exploring the relationship between Chinese crude oil futures market efficiency and market micro characteristics

Zhu,

Tian,

Wang

2024

Energy Economics

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The time-varying effects of liquidity and market efficiency of the European Union carbon market: Evidence from the TVP-SVAR-SV approach

Cited by 8 publications

References 114 publications

Re-examining the efficiency of the EU carbon futures market in phase Ⅱ: price discovery and intertemporal arbitrage

Re-examining the efficiency of the EU carbon futures market in phase Ⅱ: price discovery and intertemporal arbitrage

Critical globalisation: Productive capacity and capital productivity in the United States, 1945–2020

Exploring the relationship between Chinese crude oil futures market efficiency and market micro characteristics

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