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Article Dans Une Revue International Review of Financial Analysis Année : 2015

Liquidity and resolution of uncertainty in the European carbon futures market

Résumé

We investigate whether liquidity introduces or helps resolve uncertainty in Phase I and the first year of Phase II of the European carbon futures market. We propose a distinction between ‘absolute’ or overall liquidity and that which is ‘relative’ to a benchmark. For this purpose, we suggest volume-weighted duration as a natural measure of trading intensity as a proxy for liquidity, and we model it as a rescaled temporal point process. The new model is called Autoregressive Conditional Weighted Duration (ACWD) and is shown to outperform its discrete modelling counterparts. Liquidity is found to play a dual role, with higher relative liquidity introducing uncertainty and higher absolute liquidity accelerating uncertainty resolution, thus, enhancing market efficiency.
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Dates et versions

hal-01107956 , version 1 (09-02-2015)

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Iordanis Angelos Kalaitzoglou, Boulis Maher Ibrahim. Liquidity and resolution of uncertainty in the European carbon futures market. International Review of Financial Analysis, 2015, 37, pp.89-102. ⟨10.1016/j.irfa.2014.11.006⟩. ⟨hal-01107956⟩

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