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Experimenting with the Forecasting Power of Speculation in the Predictability of Carbon Prices

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  • Kazeem O. Isah
  • Johnson O. Adelakun
  • Elias A. Udeaja

Abstract

Drawing from the big data archive of Google Trends, we innovatively construct a novel data set, the composite news-based speculation index, to proxy for the role of speculation in the predictability of carbon prices. We employ a theory-based multi-factor predictive framework to test the hypothesis that both emission compliance and emission noncompliance dynamics of the ETS matter in the predictability of carbon prices. We show that speculation is a good predictor of carbon prices. We find the robustness of the forecasting power of speculation in the predictability of carbon prices evident for both in-sample and out-of-sample forecasts and across different forecast horizons.

Suggested Citation

  • Kazeem O. Isah & Johnson O. Adelakun & Elias A. Udeaja, 2024. "Experimenting with the Forecasting Power of Speculation in the Predictability of Carbon Prices," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 60(12), pages 2691-2702, September.
    • Handle: RePEc:mes:emfitr:v:60:y:2024:i:12:p:2691-2702
    DOI: 10.1080/1540496X.2024.2324194
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