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Price Discovery and Trading after Hours: New Evidence from the World's Largest Carbon Exchange

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  • Gbenga Ibikunle
  • Andros Gregoriou
  • Naresh R. Pandit

Abstract

We investigate the impact of after-hours trading on magnitude and timing of price discovery over the close-to-close period on the world's largest carbon trading platform, the European Climate Exchange (ECX). Low-volume trading in carbon financial instruments can lead to relatively high levels of price discovery, but the generated pricing has low efficiency levels. This is associated with high levels of informed trades and low levels of liquidity trades. Our results show higher trading volume per minute and greater price efficiency for after hours when compared with regular trading hours. As a result of a higher proportion of informed trades, adverse selection costs for trades after hours are significantly larger than those for trades during the regular trading day .

Suggested Citation

  • Gbenga Ibikunle & Andros Gregoriou & Naresh R. Pandit, 2013. "Price Discovery and Trading after Hours: New Evidence from the World's Largest Carbon Exchange," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 20(3), pages 421-445, November.
    • Handle: RePEc:taf:ijecbs:v:20:y:2013:i:3:p:421-445
    DOI: 10.1080/13571516.2013.782986
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    References listed on IDEAS

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    1. Alexandre Kossoy & Philippe Ambrosi, "undated". "State and Trends of the Carbon Market 2010," World Bank Publications - Reports 13401, The World Bank Group.
    2. Mizrach, Bruce & Otsubo, Yoichi, 2014. "The market microstructure of the European climate exchange," Journal of Banking & Finance, Elsevier, vol. 39(C), pages 107-116.
    3. repec:wbk:wboper:13399 is not listed on IDEAS
    4. Nicholas Linacre & Alexandre Kossoy & Philippe Ambrosi, "undated". "State and Trends of the Carbon Market 2011," World Bank Publications - Reports 13400, The World Bank Group.
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    Citations

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    Cited by:

    1. Omid Sabbaghi & Navid Sabbaghi, 2017. "The Chicago Climate Exchange and market efficiency: an empirical analysis," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 19(4), pages 711-734, October.
    2. Rannou, Yves, 2019. "Limit order books, uninformed traders and commodity derivatives: Insights from the European carbon futures," Economic Modelling, Elsevier, vol. 81(C), pages 387-410.
    3. Medina, Vicente & Pardo, Ángel & Pascual, Roberto, 2014. "The timeline of trading frictions in the European carbon market," Energy Economics, Elsevier, vol. 42(C), pages 378-394.
    4. Ibikunle, Gbenga & Gregoriou, Andros & Hoepner, Andreas G.F. & Rhodes, Mark, 2016. "Liquidity and market efficiency in the world's largest carbon market," The British Accounting Review, Elsevier, vol. 48(4), pages 431-447.
    5. Rannou, Yves & Barneto, Pascal, 2016. "Futures trading with information asymmetry and OTC predominance: Another look at the volume/volatility relations in the European carbon markets," Energy Economics, Elsevier, vol. 53(C), pages 159-174.
    6. Ibrahim, Boulis Maher & Kalaitzoglou, Iordanis Angelos, 2016. "Why do carbon prices and price volatility change?," Journal of Banking & Finance, Elsevier, vol. 63(C), pages 76-94.

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