Size Clustering in European Carbon Markets
29 Pages Posted: 29 Oct 2012
Date Written: October 10, 2012
Abstract
This paper documents empirical evidence of size clustering behavior in the European Carbon Futures Market and analyzes the circumstances under which it happens. Our findings show that carbon trades are concentrated in sizes of one to five contracts and in multiples of five. We have observed the existence of price clustering of prices ending in digits 0 or 5, and we have also proved that more clustered prices have more clustered sizes. Finally, the analysis of the key factors of the size clustering reveals that carbon traders use a reduced number of different trade sizes to simplify their trading process when uncertainty is high, market liquidity is poor, and the desire for opening new positions is very strong.
Keywords: clustering, size, EUA, ECX, EU ETS
JEL Classification: G12
Suggested Citation: Suggested Citation
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