Is carbon emissions trading profitable?

Narayan,PK and Sharma,SS 2015, Is carbon emissions trading profitable?, Economic Modelling, vol. 47, pp. 84-92, doi: 10.1016/j.econmod.2015.01.001.

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Title Is carbon emissions trading profitable?
Author(s) Narayan,PKORCID iD for Narayan,PK
Sharma,SSORCID iD for Sharma,SS
Journal name Economic Modelling
Volume number 47
Start page 84
End page 92
Publisher Elsevier
Publication date 2015-06
ISSN 0264-9993
Keyword(s) Carbon
Emissions trading scheme
Summary The European Carbon Emissions Trading Scheme introduced in 2005 has led to both spot and futures market trading of carbon emissions. However, despite seven years of trading, we have no knowledge on how profitable carbon emissions trading is. In this paper, we first test whether carbon forward returns predict carbon spot returns. We find strong evidence on both in-sample and out-of-sample predictability. Based on this evidence, we forecast carbon spot returns using both carbon forward returns and a constant. We consider a mean-variance investor and a CRRA investor, and show that they have higher utility and can make more statistically significant profits by following forecasts generated from the forward returns model than from a constant returns model.
Language eng
DOI 10.1016/j.econmod.2015.01.001
Field of Research 150202 Financial Econometrics
Socio Economic Objective 919999 Economic Framework not elsewhere classified
HERDC Research category C1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2015, Elsevier
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Document type: Journal Article
Collections: Faculty of Business and Law
School of Accounting, Economics and Finance
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Created: Mon, 11 May 2015, 10:35:20 EST

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