Environmental Modeling & Assessment

, Volume 21, Issue 2, pp 279–289 | Cite as

Time-Frequency Analysis of the Relationship Between EUA and CER Carbon Markets

  • Jules Sadefo Kamdem
  • Ange Nsouadi
  • Michel Terraza
Article

Abstract

In this paper, interactions or co-movement between the CER and EUA futures prices are examined in order to shed light on the dependency between the European Union Emissions Trading Scheme (EU ETS) and the clean development mechanism (MDP). Our analysis uses the wavelet method to model the correlation between CER and EUA in the time-frequency domain. It highlights the impact of different investors (according to their investment horizons) on the co-movement between the CER and EUA prices, and therefore, the behavior of individual investors as speculators, arbitrageurs, and hedgers on European allowance and CDM credits cumulatively. In this vein, we analyze according to the frequency intervals, price convergence, identification of potential factors that could explain a difference in futures prices, and structural changes in the EUA and CER prices. The application is made using daily EUA’s and CER’s prices data.

Keywords

Co-movement Carbon market Wavelet analysis Co-integration VAR Agents heterogeneity Spread-option 

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Copyright information

© Springer International Publishing Switzerland 2015

Authors and Affiliations

  • Jules Sadefo Kamdem
    • 1
    • 2
  • Ange Nsouadi
    • 2
  • Michel Terraza
    • 3
  1. 1.DFR Sciences économiques, Campus de TroubiranUniversité de la GuyaneCayenneFrance
  2. 2.LAMETA CNRS UMR 5474Université de MontpellierMontpellierFrance
  3. 3.LAMETA CNRS UMR 5474 et Faculté d’EconomieUniversité de MontpellierMontpellierFrance

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