Do Price Barriers Exist in the European Carbon Market?

ABSTRACT It is generally thought that psychological prices in markets primarily traded by professional participants should play a limited role. The authors investigate the existence of key reference points in the European Carbon Market, which can be considered as a market with highly qualified stakeholders. They document the presence of key levels and barrier bands around European Union Allowances (EUA) prices. It appears that traders tend to consider these price levels as resistances in upward movements and as supports in downward movements. Furthermore, the authors have observed that the existence of price barriers affects both return and volume dynamics. Therefore, the results indicate that there exist certain EUA prices that do, in fact, modify the behavior of European Carbon Market participants.

[1]  A. Montagnoli,et al.  Carbon trading thickness and market efficiency , 2010 .

[2]  A. Denny Ellerman,et al.  Over-Allocation or Abatement? A Preliminary Analysis of the EU Ets Based on the 2005 Emissions Data , 2006 .

[3]  Paul Slovic,et al.  Comparison of Bayesian and Regression Approaches to the Study of Information Processing in Judgment. , 1971 .

[4]  Mark Cummins,et al.  Psychological Barriers in Oil Futures Markets , 2013 .

[5]  H. Varian,et al.  Are there Psychological Barriers in the Dow-Jones Index? , 1994 .

[6]  J. Murphy.  Technical Analysis of the Financial Markets , 1999 .

[7]  Á. Pardo,et al.  What makes carbon traders cluster their orders , 2014 .

[8]  Raphael N. Markellos,et al.  Are the European Carbon Markets Efficient? , 2008 .

[9]  Ming-Hsien Chen,et al.  Psychological Barriers and Prices Behaviour of TAIFEX Futures , 2011 .

[10]  Anna Creti,et al.  Les Cahiers de la Chaire Economie du Climat Carbon Price Drivers : Phase I versus Phase II Equilibrium ? , 2011 .

[11]  A. Tschoegl.  The source and consequences of stop orders: A conjecture , 1988 .

[12]  E. Roca,et al.  Is the European Union Emissions Trading Scheme (EU ETS) informationally efficient? Evidence from momentum-based trading strategies , 2013 .

[13]  M. Parkinson.  The Extreme Value Method for Estimating the Variance of the Rate of Return , 1980 .

[14]  A. Ellerman,et al.  Over-Allocation or Abatement? A Preliminary Analysis of the EU Ets Based on the 2005 Emissions Data , 2006 .

[15]  Jason D. Mitchell,et al.  Clustering and psychological barriers: the importance of numbers , 2001 .

[16]  H. Izan,et al.  Clustering and psychological barriers in exchange rates , 2006 .

[17]  Sonja Peterson,et al.  Carbon Price Dynamics – Evidence from Phase II of the European Emission Trading Scheme , 2012 .

[18]  G. Dhaene,et al.  On the hypothesis of psychological barriers in stock markets and Benford's Law , 1998 .

[19]  Philip A. Stork,et al.  Should We Care? Psychological Barriers in Stock Markets , 1994 .

[20]  Á. Pardo,et al.  On measuring speculative and hedging activities in futures markets from volume and open interest data , 2010 .

[21]  Ken B. Cyree,et al.  Evidence of psychological barriers in the conditional moments of major world stock indices , 1999 .

[22]  P. Grauwe,et al.  Psychological Barriers in the Foreign Exchange Market , 1992 .

[23]  Á. Pardo,et al.  Assessing price clustering in European Carbon Markets , 2012 .

[24]  R. Glen Donaldson,et al.  Price Barriers in the Dow Jones Industrial Average , 1993, Journal of Financial and Quantitative Analysis.

[25]  Desheng Dash Wu,et al.  Modeling the Price Mechanism of Carbon Emission Exchange in the European Union Emission Trading System , 2013 .

[26]  Joep Sonnemans,et al.  Price Clustering and Natural Resistance Points in the Dutch Stock Market: A Natural Experiment , 2003 .

[27]  Raj Aggarwal,et al.  Psychological Barriers in Gold Prices? , 2005 .

[28]  Psychological barriers in European stock markets: Where are they? , 2009 .

[29]  Seema Narayan,et al.  Psychological Oil Price Barrier and Firm Returns , 2014 .

[30]  Lukas Menkhoff.  The use of technical analysis by fund managers: International evidence , 2010 .

[31]  J. Harrison,et al.  Carbon markets in times of VUCA: a weak-form efficiency investigation of the phase II EU ETS , 2013 .

[32]  Á. Pardo,et al.  Is the EUA a new asset class? , 2011, 2011 8th International Conference on the European Energy Market (EEM).

[33]  Kyeong Tae Kim,et al.  Psychological Barriers and Option Pricing , 2012 .