On the realized volatility of the ECX CO2 emissions 2008 futures contract: distribution, dynamics and forecasting |
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Authors: | Julien Chevallier Beno?t S??vi |
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Institution: | (1) Real Estate and Housing, Department of Marketing and Consumer Studies, College of Management and Economics, University of Guelph, Guelph, ON, N1G 2W1, Canada;(2) Department of Economics, Finance, and Decision Sciences, School of Business Administration, University of North Carolina at Pembroke, One University Drive, PO. Box 1510, Pembroke, NC 28372-1510, USA |
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Abstract: | This article documents the conditional and unconditional distributions of the realized volatility for the 2008 futures contract
in the European climate exchange (ECX), which is valid under the EU emissions trading scheme (EU ETS). Realized volatility
measures from naive, kernel-based and subsampling estimators are used to obtain inferences about the distributional and dynamic
properties of the ECX emissions futures volatility. The distribution of the daily realized volatility in logarithmic form
is shown to be close to normal. The mixture-of-normals hypothesis is strongly rejected, as the returns standardized using
daily measures of volatility clearly departs from normality. A simplified HAR-RV model (Corsi in J Financ Econ 7:174–196, 2009)
with only a weekly component, which reproduces long memory properties of the series, is then used to model the volatility
dynamics. Finally, the predictive accuracy of the HAR-RV model is tested against GARCH specifications using one-step-ahead
forecasts, which confirms the HAR-RV superior ability. |
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Keywords: | |
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