Gbenga Ibikunle
Liquidity and market efficiency in the world's largest carbon market
Ibikunle, Gbenga; Gregoriou, Andros; Hoepner, Andreas G. F.; Rhodes, Mark
Authors
Andros Gregoriou
Andreas G. F. Hoepner
Mark Rhodes
Abstract
We investigate liquidity and market efficiency on the world's largest carbon exchange, IntercontinentalExchange Inc.’s European Climate Exchange (ECX), by using intraday short-horizon return predictability as an inverse indicator of market efficiency. We find a strong relationship between liquidity and market efficiency such that when spreads narrow, return predictability diminishes. This is more pronounced for the highest trading carbon futures and during periods of low liquidity. Since the start of trading in Phase II of the EU Emissions Trading Scheme (EU-ETS) prices have continuously moved nearer to unity with efficient, random walk benchmarks, and this improves from year to year. Overall, our findings suggest that trading quality in the EU-ETS has improved markedly and matures over the 2008–2011 compliance years.
Citation
Ibikunle, G., Gregoriou, A., Hoepner, A. G. F., & Rhodes, M. (2016). Liquidity and market efficiency in the world's largest carbon market. The British accounting review, 48(4), 431-447. https://doi.org/10.1016/j.bar.2015.11.001
Acceptance Date | Nov 22, 2015 |
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Online Publication Date | Nov 27, 2015 |
Publication Date | Dec 1, 2016 |
Deposit Date | Dec 23, 2015 |
Publicly Available Date | Dec 13, 2017 |
Journal | British accounting review |
Print ISSN | 0890-8389 |
Publisher | Elsevier |
Peer Reviewed | Peer Reviewed |
Volume | 48 |
Issue | 4 |
Pages | 431-447 |
DOI | https://doi.org/10.1016/j.bar.2015.11.001 |
Keywords | Liquidity; Order flow; Market efficiency; Return predictability; European climate exchange; EU Emissions Trading Scheme (EU-ETS); Carbon futures |
Public URL | https://hull-repository.worktribe.com/output/383530 |
Publisher URL | http://www.sciencedirect.com/science/article/pii/S0890838915300032 |
Additional Information | Authors' accepted manuscript of article published in: British accounting review, 2016, v.48, issue 4. |
Contract Date | Dec 13, 2017 |
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Copyright Statement
©2017, Elsevier. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
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