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Cointegration between carbon spot and futures prices : from linear to nonlinear modeling

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EB-12-V32-I1-P16.pdf (273.4Kb)
Date
2012
Dewey
Economie de la terre et des ressources naturelles
Sujet
Cointegration; VECM with Structural Shift; Threshold Cointegration; Carbon Price; Spot Price; Futures Price
JEL code
Q4; C1
Journal issue
Economics Bulletin
Volume
32
Number
1
Publication date
2012
Article pages
160-181
Publisher
Economics Bulletin
URI
https://basepub.dauphine.fr/handle/123456789/7936
Collections
  • LEDa : Publications
Metadata
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Author
Chevallier, Julien
Type
Article accepté pour publication ou publié
Abstract (EN)
This paper develops two nonlinear cointegration models - a VECM with structural shift and a threshold cointegration model - applied to carbon spot and futures prices. The results extend the previous findings by Chevallier (2010), who studied this topic with a linear VECM. First, in the VECM with structural shift, we observe that the returns of carbon spot and futures prices correct the deviations to the long-term equilibrium, with the futures price being the leader in the price discovery. Besides, we identify a breakpoint in July 2008, which may be related to the financial crisis and its effects on the carbon market. Second, we use Hansen and Seo's (2002) methodology, which points out the need to consider threshold cointegration models. We find strong error-correction effects for the carbon futures price. Asymmetry is implied in the sense that the carbon futures price governs most of the adjustment from the short-run to the long-run equilibrium of the model above or below the estimated threshold.

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