Title: CO₂ prices and portfolio management

Authors: Maria Mansanet-Bataller; Angel Pardo

Addresses: Department of Financial Economics, Faculty of Economics, University of Valencia, Avda de los Naranjos s/n, 46022 Valencia, Spain. ' Department of Financial Economics, Faculty of Economics, University of Valencia, Avda de los Naranjos s/n, 46022 Valencia, Spain

Abstract: Since the launch of the European Union Emission Trading Scheme (EU ETS), the interest in the trade of EUAs is constantly increasing among academics and market participants. The objective of this paper is twofold: (a) a detailed description of this new market is provided for portfolio managers and (b) a comprehensive study of the implications of including Phase II EUAs in diversified portfolios is undertaken using as expected returns both historical and risk-adjusted returns. The results show that the opportunity set for investors increases when short positions in Phase II EUAs are taken.

Keywords: CO2 futures; carbon futures; carbon market; portfolio management; short positions; carbon emissions; emissions trading; carbon trading.

DOI: 10.1504/IJGEI.2011.045028

International Journal of Global Energy Issues, 2011 Vol.35 No.2/3/4, pp.158 - 177

Published online: 26 Mar 2015 *

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