An empirical investigation on the risk-return relationship of carbon future market |
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| Authors: | Ziran Li Han Qiao Nan Song Lei Zu |
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| Institution: | 1.Collaborative Innovation Center for the Innovation and Regulation of Internet-Based Finance,Southwestern University of Finance and Economics,Chengdu,China;2.CFFEX Institute for Financial Derivatives,Beijing,China;3.School of Management,University of Chinese Academy of Sciences,Beijing,China;4.Directors’ Office, Institute of High Energy Physics,Chinese Academy of Sciences,Beijing,China;5.School of Management Sciences and Engineering,Central University of Finance and Economics,Beijing,China |
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| Abstract: | This paper examines the risk-return relationship for the carbon future market during Phases I, II and III of the European Union Emission Trading Scheme (EU ETS). The risk factors derived from the newly developed LSW model, are embedded into a GARCH framework. This new specification is compared with several GARCH-M type models analyzing the risk-return relationship in the carbon market. The results show that the new specification consistently achieves a good fit and possesses superior explanatory power for the European Union Allowance (EUA) data. Some policy suggestions regarding market efficiency are also provided. |
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