Hedging with CO2 allowances: the ECX market

We investigate and empirically estimate optimal hedge ratios, for the first time, in the EU ETS carbon market. Minimum variance hedge ratios are conditionally estimated with multivariate GARCH models, and unconditionally by OLS and the naïve strategy for the European Climate Exchange (ECX) market in the period 2005-2009. Also, utility gains are considered in order to take into account risk-return considerations. Empirical results indicate that dynamic hedging provides superior gains (in reducing the variance portfolio) compared to those obtained from static hedging, when adjustment costs are not taken into account. Moreover, results improve when the leptokurtic characteristics of the data are into consideration through distributions. Results are always compared in and out of sample, suggesting also that utility gains increase with investor's increased preference over risk.CO2 Emission Allowances; Dynamic Hedging; Futures Prices; Risk Management; Spot Prices

CO2 spot and futures price analysis for EEX and ECX

In this work we analyze, explore and measure two of the most important concepts for the theory of storable commodity markets. After analyzing the statistical properties of spot and futures EU ETS allowances for Germany and France, we model and test the risk premium and convenience yield for CO2 contracts accordingly to previous economic theories, for the period 2005-2009. Results indicate that convenience yields are positively related to the spot CO2 return while being negatively influenced by the spot volatility. This negative impact of spot volatility is also verified for the risk premium, with the latter varying positively with time to maturity. Contradicting previous empirical findings, we found only a positive influence of the convenience yield on the risk premium for the ECX French market and for Phase II contracts, leading us to conclude that results are Phase, market and data span dependent. Moreover, results are independent on the volatility forecast used and important for risk management purposes for allowances markets participants. Moreover, day-ahead markets for CO2 are in "normal contango" for the entire data period under analysis, contrary to previous empirical findings for the allowances market.CO2 Emission Allowances; Volatility; Volume; Maturity; Convenience Yield; Risk Premium; Spot Prices; Futures Prices

Analysis of the New Kuznets Relationship: Considering Emissions of Carbon, Methanol, and Nitrous Oxide Greenhouse Gases - Evidence from EU Countries

Decreased greenhouse gas emissions (GHG) are urgently needed in view of global health threat represented by climate change. The goal of this paper is to test the validity of the Environmental Kuznets Curve (EKC) hypothesis, considering less common measures of environmental burden. For that, four different estimations are done, one considering total GHG emissions, and three more taking into account, individually, the three main GHG gases—carbon dioxide (CO2), nitrous oxide (N2O), and methane gas (CH4)—considering the oldest and most recent economies adhering to the EU27 (the EU 15 (Old Europe) and the EU 12 (New Europe)) separately. Using panel dynamic fixed effects (DFE), dynamic ordinary least squares (DOLS), and fully modified ordinary least squares (FMOLS) techniques, we validate the existence of a U-shaped relationship for all emission proxies considered, and groups of countries in the short-run. Some evidence of this effect also exists in the long-run. However, we were only able to validate the EKC hypothesis for the short-run in EU 12 under DOLS and the short and long-run using FMOLS. Confirmed is the fact that results are sensitive to models and measures adopted. Externalization of problems globally takes a longer period for national policies to correct, turning global measures harder and local environmental proxies more suitable to deeply explore the EKC hypothesis.info:eu-repo/semantics/publishedVersio

Assessing Eco-Efficiency in Asian and African Countries Using Stochastic Frontier Analysis

This study aims to evaluate the economic and environmental efficiency of Asian and African economies. In the model proposed, Gross Domestic Product (GDP) is considered as the desired output and Greenhouse Gases (GHG), like carbon dioxide (CO2) emissions, as the undesirable output. Capital, labor, fossil fuels, and renewable energy consumption are regarded as inputs, and the GDP/CO2 ratio is the output, by using a log-linear Translog production function and using data from 2005 until 2018, including 22 Asian and 22 African countries. Results evidence cross-countries heterogeneity among production inputs, namely labor, capital, and type of energy use and its efficiency. The models complement each other and are based on different distributional assumptions and estimation methods while providing a picture of Eco-efficiency in Asian and African economies. Labor and renewable energy share increase technical Eco-efficiency, while fixed capital decreases it under time-variant models. Technical improvements in Eco-efficiency are verified through time considering the time variable into the model estimations, replacing fossil fuels with renewable sources. An inverted U-shaped Eco-efficiency function is found concerning the share of fossil fuel consumption. Important policy implications are drawn from the results regarding the empirical results.info:eu-repo/semantics/publishedVersio

A Two-Stage DEA Model to Evaluate the Technical Eco-Efficiency Indicator in the EU Countries

This paper evaluates the evolution of eco-efficiency for the 27 European Union (EU) countries over the period 2008–2018, provided the traditional high concerns of the EU concerning the economic growth-environmental performance relationship. The EU has triggered several initiatives and regulations regarding environmental protection over the years, but as well the Sustainable Development Goals demand it. Under this setting, we conduct a two-stage analysis, which computes eco-efficiency scores in the first stage for each of the pairs EU 27-year, through the nonparametric method data envelopment analysis (DEA), considering the ratio GDP per capita and greenhouse gas emissions (GHG). In the second stage, scores are used as a dependent variable in the proposed fractional regression model (FRM), whose determinants considered were eight pollutants (three greenhouse gases and five atmospheric pollutants). CO2/area and N2O/area effects are negative and significant, improving the eco-efficiency of the EU 27 countries. When the efficient European countries are excluded from the estimations, the results evidence that CO2/area and CH4/area decrease the DEA score. The country with the lowest GHG emissions and pollutant gases was Ireland, being the country within the considered period that mostly reduced emissions, particularly SOx and PM10, increasing its score.info:eu-repo/semantics/publishedVersio

The Financial Performance of European Companies: Explanatory Factors in the Context of Economic Crisis

Financial accounting information plays an important role in assessing and forecasting firms’ financialperformance. But besides that, there are other external factors affecting the performance of firms, suchas economic and financial crises, which cause imbalances over the economy and affects the business environment.Thus, based on financial statements data, in this paper, the determinants of financial performance areexamined, and the impact of a financial crisis on these factors is analyzed, using the fixed and random effectspanel estimators. A sample of non-financial firms from European countries considering annual data for theperiod of 2006 to 2015 was used for this research. The results achieved by panel data analysis show that acrisis exerts a significant positive effect over financial performance as well as liquidity, assets turnover, andlabor productivity, meaning that firms tend to put in greater efforts to maintain financial performance in theface of a crisis. Financial performance is significantly and negatively influenced by leverage independently ofthe crisis effect, showing return on assets to be lower than the average interest rate

Corporate governance effects on market volatility:empirical evidence from portuguese listed firms

Purpose This study examines the relationship between internal corporate governance mechanisms and firm risk-taking. Design/methodology/approach This research comprises a sample of 38 non-financial Portuguese firms listed on Euronext Lisbon, over the period from 2007 to 2017. To test the formulated hypotheses we use panel-corrected standard errors (PCSE) models. Findings Our results provide evidence that, in the Portuguese context, bigger and younger firms, with larger boards of directors and a greater number of independent directors, present higher levels of systematic risk. Our results are consistent across the robustness checks. Originality/value To the best of our knowledge, this is the first time that a robust incremental effect of board size on firm systematic risk is reported. This result contradicts the prevailing literature and opens up a new debate, from a financial markets viewpoint, on the benefits of larger boards of directors in terms of mitigating market volatility.info:eu-repo/semantics/publishedVersio

The effect of urban air pollutants in Germany: eco-efficiency analysis through fractional regression models applied after DEA and SFA efficiency predictions

Cities and living standards contribute intensively to air pollution, an environmental risk factor which causes diseases. Recently, in developed countries, the majority of cities has grown rapidly and has experienced increasing environmental problems. In this article we analyze the effect of urban air pollution considering the available data for the years 2007, 2010 and 2013 in 24 German cities. Proposing a new model, we start the analysis using data envelopment analysis (DEA) and stochastic frontier analysis (SFA) to predict eco-efficiency scores for the 24 German cities. Afterwards, it is applied fractional regression to infer about the influencing factors of the eco-efficiency scores, at the city level. Results suggest a significant impact over eco-efficiency due to the excess of PM10, the average temperature, the average of NO2 concentration and rainfall. The findings in this study hold important implications for policymakers and urban planners in Germany, especially those that coordinate environmental protection and economic development in cities. Therefore, interventions to reduce urban air pollution can be accomplished on different regulatory levels, leading to synergistic effects as the decrease of climate change effects and noise.publishe

A new composite indicator for assessing energy poverty using normalized entropy

Using a unique or common measure of energy poverty is very limited for the true classification of a household being in energy poverty. Thus, this study proposes a composite indicator, whose weights will be determined from the estimation of two relationships using a robust and stable methodology based on information theory. This work considers two regression models, where the two dependent variables are the gross domestic product and greenhouse gas, and the 12 energy poverty explanatory variables are based on those proposed by Recalde et al. (2019), for the period 2008-2018. Hence, the study presents a more comprehensive measurement with additional dimensions, weights, and indicators. Probably most important, in addition to the discussed proposal with a specific choice of models and variables, this work reveals a promising methodology that can be replicated in any other theoretical configuration. This approach is suitable for the discussion and design of new energy, environmental and social policies. Findings can be used to assess in advance the effectiveness of energy poverty measures, turning the model into a valuable policy tool.publishe

Women vs Men: Who performs better on Energy Literacy?

Energy literacy is seen as one of the most powerful tools, available to ordinary people, to contribute to a more sustainable world. Since women tend to be considered the main caregivers, due to their maternal instinct, being generally more attentive, more altruistic, and more concerned with the future of their children, are women more involved in the transition to a more sustainable future? To answer this question, we seek to assess the literacy levels of Portuguese university members and explore the differences between men and women. Using the Heteroskedastic Ordered Probit, we found that women tend to have lower levels of knowledge about energy, but a more positive and sustainable attitude and behavior