1,721,010 research outputs found
Energy commodities spillover analysis for assessing the functioning of the European Union Emissions Trading System trade network of carbon allowances
No full textWhen the intensity of trading meets compliance requirements: An assessment for firms operating within the EU ETS
No full textWe analyze the drivers of the volume of traded allowances and number of transactions carried out by firms within the European Union Emissions Trading System to study whether heterogeneous levels of trade participation relate to different carbon abatement performances. We analyze the entire Phases II and III of the program. We show that the difference between acquired and transferred allowances is strongly related to the level of carbon emissions over total assets, suggesting that the net amount of allowances traded by firms is mainly due to compliance surrendering requirements. Such a relationship is stronger when firms are net buyers than net sellers of allowances, possibly implying a violation of the Coase theorem. Furthermore, we investigate the factors influencing the intensity of allowances trading. We find that the number of performed transactions is mainly related to business characteristics relevant to the EU ETS functioning, such as the amount of owned installations or managed voluntary opened accounts. We test several alternative model specifications, including banked allowances and non-linearities, and find supporting evidence of our results
Portfolio hedging through a novel equity index based on the verified emissions of EU ETS-regulated firms
Full text linkWe build an equity index based on EU ETS-regulated listed firms. The weights of our index reflect the cross-sectional heterogeneity in the firms’ environmental performances measured in terms of verified rather than estimated or self-reported emissions. By using a DCC-GARCH model, we estimate optimal weights and assess the hedge effectiveness of the EU ETS index across multiple asset classes. The index provides robust hedging benefits, particularly during Phases III and IV of the EU ETS, aligning with stricter environmental policies. Portfolio optimization techniques show that incorporating the EU ETS index enhances risk-adjusted performance. Our findings offer actionable insights for investors seeking to minimize financial risks
Hedging financial risks with a climate index based on EU ETS firms
Full text linkThis paper proposes a stock market index that captures the environmental performance of firms regulated by the European Union Emissions Trading System (EU ETS). Unlike alternative methods based on market capitalization, ESG scores, and Scope 1 and 2 estimated emissions, the proposed approach relies on total verified emissions to better reflect firms’ carbon abatement efforts. A DCC-GARCH model is employed to estimate the hedge ratios, optimal weights, and hedge effectiveness of the index across various asset classes. The proposed index offers superior hedging performance compared to the European Union Allowances (EUAs), a common benchmark for tracking carbon abatement, although hedging with the EU ETS index tends to be more expensive. The proposed index constitutes a valuable tool for investors seeking climate-conscious equity investments in carbon-intensive firms with strong environmental performance
The environmental-financial performance nexus of EU ETS firms: A quantile regression approach
Full text linkCap-and-trade schemes are particularly attractive climate mitigation policies as they promote investment in low-carbon technologies while allowing firms to minimise their compliance costs. This can generate a positive relationship between firms’ environmental and financial performance. However, firms with limited financial resources can find cap-and-trade schemes difficult to manage, leading to their under-participation in the allowances market. This paper examines how participation in the EU ETS (measured by network centrality measures) may affect the relationship between environmental and financial performance. A panel quantile regression analysis is performed to account for possible heterogeneous behaviours at different quantiles of the financial performance distribution. The results suggest that lower emission intensity is associated with higher financial performance, and that the higher the firm's network centrality in selling allowances, the stronger this association is. Moreover, the positive relationship between environmental and financial performance is stronger and clearer at the bottom of the financial performance distribution, thus confirming the importance of accounting for heterogeneous behaviours at different quantiles of the distribution
Investment communities: Behavioral attitudes and economic dynamics
Full text linkUsing a real-world data set encompassing the daily portfolio holdings and exposures of complex investment funds, we derive a set of quantitative attributes to capture essential behavioral features of fund managers. We find the existence and stability of three investment attitudes, namely the conservative, the reactive, and the pro-active profiles, defining communities that respond differently when facing external shocks. The conservative community has behavioral similarities that tend to decrease due to external shocks, the reactive community members greatly increase their activity level especially during turmoil phases, while delegated investors in the pro-active community are more resilient to turbulence and counterbalance the impact of the events by adjusting their portfolio exposures in advance. We show that exogenous shocks only temporarily perturb the behavioral traits of the communities which then go back to their original states once the distress is embedded
Market responses to spillovers in the energy commodity markets: Evaluating short-term vs. long-term effects and business-as-usual vs. distressed phases
Full text linkWe study how market spillovers propagate within a comprehensive system of energy commodities by employing spillover analysis in the time and frequency domains. Raw materials dominate the system's connectedness, behaving as net transmitters of spillovers. However, the dynamic analysis shows that downstream commodities may also act as net transmitters but only in a few short phases. Importantly, relevant energy market episodes generate more substantial spillovers, while lower system connectedness is observed during events primarily affecting other sectors. Our main findings are substantially invariant to a series of robustness checks. These results also hold when analyzing the distribution's tails in a quantile framework that we introduce to study distressed periods. Finally, we examine a broad frequency spectrum and find high efficiency in this system, with substantial spillovers absorbed in less than two days for all commodities
EU ETS Facets in the Net: How Account Types Influence the Structure of the System
Full text linkIn this work, we investigate which countries have been more central during Phases I and II of the European Emission Trading Scheme (EU ETS) with respect to the different types of accounts operating in the system. We borrow a set of centrality measures from Network Theory's tools to describe how the structure of the system has evolved over time and to identify which countries have been in the core or in the periphery of the network. In doing this, we investigate by means of extensive partitions on the different types of accounts and transactions characterizing the EU ETS whether the role of intermediaries (approximated by Person Holding Accounts - PHAs) has affected the overall structure of the system. Preliminary findings over the period 2005-2012 suggest that PHAs have played a prominent role in the transaction of permits, heavily influencing the configuration of the system. This motivates further research on the impact of non-regulated entities in the EU ETS design
Banks' business strategies on the edge of distress
Full text linkThe paper investigates the importance of banks’ business classification in shaping the risk profile of financial institutions on a global scale. We employ a rare-event logit model based on a state-of-the-art list of major global distress events from the global financial crisis. When clustering banks by their business strategies using a community detection approach, we show that (i) capital enhanced resilience only for traditional banks that were on average less capitalized than other banks; (ii) boosting ROE, usually associated with riskier exposures, improved resilience for stable funded and asset diversified banks; (iii) conversely, higher levels of ROA exacerbated banks’ vulnerability when associated with concentrated (not-diversified) investment structures; (iv) size in terms of total assets contributed to instability only for wholesale-funded institutions due to their high levels of unstable funding. Liquidity, on the contrary, reduced the institution likelihood of being in distress, regardless of its business classification. Although our findings refer to the recent financial crisis, they provide evidence that a tailored risk monitoring based on a proper peer group identification can facilitate banks’ distresses prediction
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