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Multiple comparisons problem: Recent advances applied to energy and emissions

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  • M. Cummins

Abstract

Within the field of empirical finance, the econometric analysis of markets commonly suffers from the well-established problem of data-snooping bias, whereby there is a likelihood that statistically significant results may be identified by pure random chance alone. This is the multiple comparisons problem resulting from Multiple Hypothesis Testing (MHT). Recent advances in MHT techniques to control the multiple comparisons problem are uniquely showcased within a VAR and Granger causality testing of energy and emissions market interactions. Four generalized p -value-based MHT techniques show no evidence of interactions between European Union Allowance (EUA) prices and a range of energy prices -- spanning key oil, gas, coal and electricity markets -- over the first half or so (2008--2010) of Phase II of the EU Emissions Trading Scheme. The generalized familywise error rate procedures show evidence of regional and cross-regional interactions within European electricity markets. However, in contrast, the more conservative false discovery proportion procedures identify much fewer statistically significant relationship and, indeed, show little evidence of such cross-regional electricity market interactions.

Suggested Citation

  • M. Cummins, 2013. "Multiple comparisons problem: Recent advances applied to energy and emissions," Applied Economics Letters, Taylor & Francis Journals, vol. 20(9), pages 903-909, June.
  • Handle: RePEc:taf:apeclt:v:20:y:2013:i:9:p:903-909
    DOI: 10.1080/13504851.2012.761334
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    References listed on IDEAS

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    1. Fell, Harrison, 2008. "EU-ETS and Nordic Electricity: A CVAR Approach," RFF Working Paper Series dp-08-31, Resources for the Future.
    2. Derek W. Bunn & Carlo Fezzi, 2007. "Interaction of European Carbon Trading and Energy Prices," Working Papers 2007.63, Fondazione Eni Enrico Mattei.
    3. Sophie Chemarin & Andreas Heinen & Eric Strobl, 2008. "Electricity, carbon and weather in France: where do we stand ?," Working Papers hal-00340171, HAL.
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    Cited by:

    1. Dowling, Michael & Cummins, Mark & Lucey, Brian M., 2016. "Psychological barriers in oil futures markets," Energy Economics, Elsevier, vol. 53(C), pages 293-304.
    2. Cummins, Mark & Garry, Oonagh & Kearney, Claire, 2014. "Price discovery analysis of green equity indices using robust asymmetric vector autoregression," International Review of Financial Analysis, Elsevier, vol. 35(C), pages 261-267.
    3. Deeney, Peter & Cummins, Mark & Dowling, Michael & Bermingham, Adam, 2015. "Sentiment in oil markets," International Review of Financial Analysis, Elsevier, vol. 39(C), pages 179-185.

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