TY - JOUR
T1 - California carbon allowance futures
AU - Shi, Shimeng
AU - Zhai, Jia
N1 - Publisher Copyright:
© 2024 Elsevier Inc.
PY - 2024/12
Y1 - 2024/12
N2 - Carbon pricing is an important tool to address climate challenge, while limited attention has been given to the U.S. carbon derivatives market, i.e., California carbon allowance (CCA) futures market. To deal with various data frequencies, we use a mixed frequency vector autoregressive model. We find that changes in trading positions of hedgers and speculators can affect the CCA futures returns. Like other commodity futures markets, commercials act as contrarians, while non-commercials behave like momentum traders. We find some evidence of a feedback relationship between the CCA futures market and California's economic condition. The interaction between the energy sector and the carbon futures market is evident. The CCA futures market is more sensitive to climate policy risk than abnormal temperature. Other ETSs’ carbon futures prices and inflation expectation could affect the CCA futures returns on some trading days.
AB - Carbon pricing is an important tool to address climate challenge, while limited attention has been given to the U.S. carbon derivatives market, i.e., California carbon allowance (CCA) futures market. To deal with various data frequencies, we use a mixed frequency vector autoregressive model. We find that changes in trading positions of hedgers and speculators can affect the CCA futures returns. Like other commodity futures markets, commercials act as contrarians, while non-commercials behave like momentum traders. We find some evidence of a feedback relationship between the CCA futures market and California's economic condition. The interaction between the energy sector and the carbon futures market is evident. The CCA futures market is more sensitive to climate policy risk than abnormal temperature. Other ETSs’ carbon futures prices and inflation expectation could affect the CCA futures returns on some trading days.
KW - California carbon allowance futures
KW - CFTC's trading position
KW - Climate change
KW - Energy sector
KW - Real economy
UR - http://www.scopus.com/inward/record.url?scp=85206829764&partnerID=8YFLogxK
U2 - 10.1016/j.frl.2024.106265
DO - 10.1016/j.frl.2024.106265
M3 - Article
AN - SCOPUS:85206829764
SN - 1544-6123
VL - 70
JO - Finance Research Letters
JF - Finance Research Letters
M1 - 106265
ER -