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The inconvenience yield of carbon futures

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  • Palao, Fernando
  • Pardo, Ángel

Abstract

Since 2009, the European Carbon Futures Market has been in a permanent contango situation that is characterised by systematic negative convenience yields that allow investors to exploit profitable arbitrage opportunities. The objective of this paper is to analyse the possible drivers of these negative convenience yields. Our empirical results indicate that although some carbon trading variables are behind this contango situation, the carbon inconvenience yield is better explained if other financial markets and variables are considered, suggesting a financialization of the European Carbon Futures Market.

Suggested Citation

  • Palao, Fernando & Pardo, Ángel, 2021. "The inconvenience yield of carbon futures," Energy Economics, Elsevier, vol. 101(C).
    • Handle: RePEc:eee:eneeco:v:101:y:2021:i:c:s0140988321003479
    DOI: 10.1016/j.eneco.2021.105461
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    Cited by:

    1. Michele Azzone & Roberto Baviera & Pietro Manzoni, 2024. "The puzzle of Carbon Allowance spread," Papers 2405.12982, arXiv.org.
    2. Feng, Ling & Wang, Jieyu, 2023. "Random sources correlations and carbon futures pricing," International Review of Financial Analysis, Elsevier, vol. 86(C).
    3. Huang, Wenyang & Wang, Huiwen & Wei, Yigang, 2023. "Identifying the determinants of European carbon allowances prices: A novel robust partial least squares method for open-high-low-close data," International Review of Financial Analysis, Elsevier, vol. 90(C).
    4. repec:crb:wpaper:2023-01 is not listed on IDEAS

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