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Financial implications of the EU Emission Trading System: an analysis of wavelet coherence and volatility spillovers

Author

Listed:
  • Pietro De Ponti

    (Department of Economics, Management and Statistics, University of Milano-Bicocca)

  • Matteo Romagnoli

    (Department of Economics, Management and Statistics, University of Milano-Bicocca)

Abstract

We study the European Union’s Emission Trading System (EU ETS) from a financial perspective. Using ARMA-eGARCH filtered volatilities, we first discuss the evolution of the volatility of EU ETS allowances’ returns from 2008 to 2021. Second, we study the degree of co-movement and interdependence between the EU ETS returns’ volatility and those of 37 large companies in industries subject to the System; to this end, we employ Wavelet Coherence and Volatility Spillovers Analyses. Despite spotting seasons of co-movement between volatilities in the markets under consideration, the market performances of the companies in our sample are not particularly responsive to the EU ETS dynamics, except for temporary seasons of interconnection in correspondence of relevant policy changes.

Suggested Citation

  • Pietro De Ponti & Matteo Romagnoli, 2022. "Financial implications of the EU Emission Trading System: an analysis of wavelet coherence and volatility spillovers," Working Papers 2022.22, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2022.22
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    References listed on IDEAS

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    More about this item

    Keywords

    EU Emission Trading System; volatility spillovers; wavelet coherence;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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