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Identifier to cite or link to this item: https://doi.org/10.15057/27600
Identifier to cite or link to this item: https://hdl.handle.net/10086/27600

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Title
TRANSACTION COSTS AND NONLINEAR MEAN REVERSION IN THE EU EMISSION TRADING SCHEME
Creator
Creator Name
KIM, JEONGHYUN KIM, JEONGHYUN
Affiliation
Affiliation Name
Korea University
Creator Name
SEO, BYEONGSEON SEO, BYEONGSEON
Key Word
EU ETS
market efficiency
nonlinear mean reversion
price discovery
threshold cointegration
transaction costs
JEL
G15
Q50
Abstract
The potential benefits of tradable pollution permits and allowances can be limited by transaction costs. The implementation and operation of the European Union Emission Trading Scheme (EU ETS) involves transaction costs such as internal costs, capital costs, and consultancy and trading costs. This paper investigates the effect of transaction costs on market efficiency and price discovery in the EU ETS. An empirical assessment of nonlinear mean reversion is provided using threshold cointegration, which allows for asymmetric regime-dependent adjustment to the equilibrium relationship between European Union Emission Allowances (EUA) spot and futures prices. The mean reversion process reveals nonlinear and regime-dependent adjustment, and thus the empirical evidence indicates that transaction costs affect the mean reversion behavior and restrain market efficiency and price discovery.
Publisher
Hitotsubashi University
Issued Date
2015-12
Language
English(eng)
Resource Type
departmental bulletin paper
Version Type
VoR
selfDOI
10.15057/27600
ISSN
0018-280x
NCID
AA00207547
Source Title
Hitotsubashi Journal of Economics
Volume Number
56
Issue Number
2
Page Start
281
Page End
296
Appears in Collections
Vol. 56, no. 2 (Dec. 2015)
URL
https://hdl.handle.net/10086/27600