The Impact of Regulatory Changes on the Efficiency of the Phase II EU ETS European Carbon Futures

Jin Young Yang
Andrew Lepone
Alexander Sacco

Document Type

Article

Source of Publication

Review of Futures Markets

Publication Date

1-1-2012

Abstract

This study investigates long-horizon weak form market efficiency in the Phase II EU ETS (European Union Emissions Trading Scheme) Carbon Futures Market. Using data that encompasses exchange based (ECX) trades in Phase I and Phase II ECX CFI futures contracts from January 1, 2008, to September 28, 2010, this study employs various tests of long horizon weak form market efficiency including variance ratio tests, tests of trading rule profitability, and serial correlation. In contrast to prior research that focuses on Phase I EU ETS, this study finds evidence of a significant structural change to the EU ETS from Phase I to Phase II, and supports the efficient market hypothesis during Phase II (2008"“2010). Results suggest that documented improvements in market quality, increasing trading activity, and removal of Phase I market frictions have fostered improvements in market efficiency into and during Phase II.

Volume

20

Last Page

25

Disciplines

Business

Indexed in Scopus

no

Open Access

no

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