Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments May 13, 2023 erstellt
Description:
We examine the role of speculation in the dynamics of carbon pricing, covering Phase II, Phase III, and Phase IV of the EU Emission Trading System (EU-ETS). We go beyond the norm of restricting the dynamics of carbon pricing to market fundamentals and instead develop an all-inclusive modelling framework that accommodates not only the Emission Compliance activity of the ETS but also the speculation activity of the financial actors in the market. Drawing from the big data archive of Google Trends, we construct a news-based speculation index to proxy for the role of speculation in the dynamics of carbon pricing. Given our preliminary finding of inherent volatility and the mixed-frequency nature of the dataset, we employ the GARCH-MIDAS econometric technique to empirically validate the accuracy of the proposed all-inclusive framework as a more comprehensive approach to modelling carbon prices. We show that a higher value of speculation fosters higher long-term volatility in carbon price returns. In sum, we provide the literature with a data-driven estimate of whether and to what extent the non-Emission Compliance agents (NECAs) should be accommodated or barred from participating in the ETS