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Université de MonsUniversité de Mons
Capital market response to emission allowance prices: a multi-variate GARCH approach.
Venmans Frank | [email protected] | 065/37 32 13Assistant Service Finance , Faculté Waroqué d’Economie et de Gestion
AbstractThis study assesses the impact of European Emission Allowances (EUA) prices on stock prices of all companies in the StoxxEurope Total Market Index belonging to sectors regulated by the European Union Emission Trading Scheme (EU ETS). The effect of allowance prices on stock prices is found to be firm specific. For most companies, EUA price increases (decreases) are found to have a significant positive (negative) impact on stock prices of regulated companies. The results indicate that free allocation, designed to avoid carbon leakage, but having several distortional effects, was generally over-compensating potential carbon costs during the second EU ETS period. Different multivariate GARCH models, generalized least squares panel models and aggregated models are compared showing that models who impose covariances between firms to be zero or who impose a common carbon effect for all firms are biased.
The main equation:
With:• Rstock: Closing price of ETS regulated firms in STOXX Europe TMI
(n=97). Subdivided in 7 sectors.• Rcarbon,t : EUA price (future 2012)
• rOil: Oil price
• rGas: Gas price
• rCoal: Coal price
• rPElec: Electricity baseload price
• rStoxxEurope600: Stoxx index
All variables in logreturns.From 14-08-2007 to 25-08-2011For aggregate models no firm index I and lag dependent added
The effect of carbon prices on stock prices with common βcarbon for all firms of one sector.
Between brackets (robust) standard errors. * significant at the 10% level, ** significant at the 5% level, *** significant at the 1% level according to a 2-sided t-test .
Covariance in model Covariance=0
DiagVech (1,1)M Variance targA,B indefinite
DiagVech (1,1)M scalarA,B indefinite
DiagVech (1,1)M indefiniteA,B scalar
BEKK(1,1)M indefiniteA,B diagonal
BEKK (1,1)M diagonalA,B diagonal
CCCM scalar
DiagVech (1,1)M indefiniteA,B diagonal
FGLS PanelCross-section SUR
DiagVech (1,1)M diagonalA,B diagonal
DiagVech (1,1)M diagonal constA,B diagonal const
FGLS Panel period heteroscedast
Aggregate Garch
Aggregate OLS
ElectricityN=17(oil, gas, coal, elec)
β carbon: -0.002 (0.008)Logl:51580AIC:-97.37BIC:-95.89# param:314
β carbon: -0.003 (0.009)Logl:51348AIC:-96.93BIC:-95.44# param:315
β carbon: -0.000 (0.008)Logl:51707AIC:-97.90BIC:-97.13# param:163
β carbon : -0.001 (0.007)Logl:51784AIC :-97.98BIC:-97.07# param:195
β carbon : -0.003 (0.005)Logl:51526AIC :-97.75BIC:-97.47# param:59
β carbon : 0.001 (0.007)Logl:51945AIC :-98.29BIC:-97.37# param:195
β carbon : 0.003 (0.006)Logl:51783AIC :-97.98BIC:-97.07# param:195
β carbon: 0.001 (0.009)# param:7
β carbon: 0.005 (0.003)Logl:51073AIC:-96.89BIC:-96.61# param: 59
β carbon: 0.011(0.004)**Logl: 50884AIC: BIC: # param:11
β carbon: 0.010 (0.007) 1
R²=0.23# param:7
β carbon: 0.012 (0.009)# param:11
β carbon: 0.011 (0.013)²R²=0.89# param:7
Iron&SteelN=13(oil, coal, elec)
β carbon: 0.0034 (0.012)Logl: 36223AIC:-68.4BIC:-67.5# param:189
β carbon: 0.0017 singular covarLogl:33865AIC:-63.9BIC:-63.06# param:190
β carbon: 0.0038 (0.013)Logl: 36051AIC: -68.3BIC: -67.8# param: 100
β carbon: 0.005 (0.012)Logl:36144AIC:-68.4BIC:-67.8# param:124
β carbon: -0.0005 (0.008)Logl:35890AIC:-68.1BIC:-67.8# param:46
β carbon: 0.0002 (0.012)Logl:36240AIC:-68.59BIC:-68.00# param:124
β carbon: 0.0084 (0.013)Logl:36141AIC:-68.40BIC:-67.82# param:124
β carbon : 0.018 (0.015)
β carbon: 0.020 (0.0044)***Logl:33683AIC:-63.9BIC:-63.7# param:46
β carbon: 0.024 (0.007)***Logl:33336AIC: BIC: # param:11
β carbon: 0.028 (0.013)** 1
R²= 0.45
β carbon: 0.027 (0.017)
β carbon: 0.040 (0.022)*²R²=0.75
NonferrousN=5(oil, coal, elec)
β carbon: 0.036 (0.020)*Logl:11733AIC:-23.44BIC:-23.25# param:37
β carbon: 0.035 (0.018)*Logl:11725AIC:-23.42BIC:-23.23# param:38
β carbon: 0.028 (0.018)Logl: 11682AIC: -23.36BIC: -23.24# param: 24
β carbon: 0.031 (0.018)*Logl:11701AIC:-23.38BIC:-23.22# param:32
β carbon: 0.029Logl:11684AIC:-23.37BIC:-23.26# param:22
β carbon: 0.037 (0.017)**Logl:11729AIC:-23.44BIC:-23.28# param:32
β carbon: 0.046 (0.018)***Logl:11719AIC:-23.42BIC:-23.27# param:32
β carbon : 0.040 (0.023)
β carbon: 0.038 (0.012)***Logl:11630AIC:-23.26BIC:-23.15# param: 22
β carbon: 0.035 (0.015)**Logl: 9879AIC: BIC: # param:11
β carbon: 0.026 (0.011)** 1
R²= 0.52
β carbon: 0.040 (0.021)
β carbon: 0.050 (0.026)*²R²= 0.66
Building materialsN=13(oil, coal, elec)
β carbon: -0.0028 singular covar Logl:36339AIC:-68.6BIC:-67.7# param: 189
β carbon: 0.008singular covariance Logl:35902AIC:-67.8BIC:-66.9# param: 190
β carbon: 0.0033 (0.010)Logl: 36167AIC: -68.5BIC: -68.0# param: 100
β carbon: 0.0013 (0.009)Logl:36250AIC:-68.6BIC:-68.0# param: 124
β carbon: 0.0049 (0.007)Logl:36069AIC:-68.4BIC:-68.2# param: 46
β carbon: 0.0027 (0.009)Logl:36325AIC:-68.76BIC:-68.17# param: 124
β carbon: 0.0078 (0.008)Logl:36223AIC:-68.5BIC:-67.9# param: 124
β carbon : 0.010 (0.012)
β carbon: 0.020 (0.004)*** Logl:36250AIC:-68.6BIC:-68.0# param: 46
β carbon: 0.017 (0.007)**Logl:35081AIC: BIC: # param:11
β carbon: 0.019 (0.010)** 1
R²= 0.32
β carbon: 0.019 (0.014)
β carbon: 0.019 ( 0.016)²R²= 0.76
ChemicalsN=24(oil, gas, coal, elec)
β carbon: 0.025 singular covariance Logl:66492AIC:-125.1BIC:-122.3# param:608
β carbon: 0.023 (0.021)Logl:63402AIC:-119.27BIC:-116.40# param:609
β carbon: 0.013 (0.009)Logl: 67705AIC: -128.0BIC: -126.5# param: 310
β carbon: 0.016 (0.010)Logl:67843AIC:-128.2BIC:-126.5# param:356
β carbon: 0.011 (0.005)**Logl:67257AIC:-127.6BIC:-127.2# param:80
β carbon: 0.018 (0.009)*Logl:67878AIC:-128.25BIC:-126.57# param:356
β carbon: 0.019 singular covLogl:67328AIC:-127.2BIC:-125.5# param:355
β carbon : 0.022 (0.010)
β carbon: 0.022 (0.003)***Logl:66366AIC:-125.9BIC:-125.5# param:80
β carbon: 0.024 (0.005)***Logl:66082AIC: BIC: # param:11
β carbon: 0.023 (0.008)*** 1
R²= 0.31
β carbon: 0.031 (0.012)***
β carbon: 0.036 (0.014)**²R²= 0.79
RefineriesN=12(oil, gas, elec)
β carbon: 0.020 (0.009)**Logl: 36833AIC:-69.6BIC:-68.8# param: 163
β carbon: 0.018 (0.009)**Logl:36866AIC:-69.7BIC: -68.9# param: 164
β carbon: 0.017 (0.008)**Logl: 36724AIC: -69.6BIC: -69.1# param: 87
β carbon: 0.018 (0.008)Logl:36796AIC:-69.7BIC:-69.2# param:109
β carbon: 0.017 (0.006)**Logl:36640AIC:-69.5BIC:-69.3# param:43
β carbon: 0.017 (0.008)**Logl:36822AIC:-69.73BIC:-69.22# param:109
β carbon: 0.019 Singular covariance Logl:36593AIC:-69.2BIC:-68.8# param: 109
β carbon : 0.035 (0.010)
β carbon: 0.029 (0.003)***Logl:35587AIC:-67.5BIC:-67.3# param: 43
β carbon: 0.031 (0.005)***Logl:35374AIC: BIC: # param:11
β carbon: 0.037 (0.007)*** 1
R²= 0.41
β carbon: 0.032 (0.012)***
β carbon: 0.049 (0.013)***²R²= 0.80
PaperN=13(oil, gas, coal, elec)
1 iteration
β carbon: -0.013singular covarLogl: 30753AIC: -58.0BIC: -57.1# param: 191
β carbon: 0.000 (0.010)Logl: 35457AIC: -67.1BIC: -66.7# param: 101
β carbon: -0.003 (0.011)Logl:35555AIC:-67.3BIC:-66.7# param:125
β carbon: -0.003 (0.007)Logl:35364AIC:-67.1BIC:-66.9# param:47
β carbon: -0.003 (0.010)Logl:35622AIC: -67.42BIC:-66.83# param:125
β carbon: 0.010 (0.006)*Logl: 34726AIC : -65.7BIC: -65.1# param:125
β carbon : 0.013 (0.011)
β carbon: 0.003 (0.005)Logl: 34578AIC: -65.6BIC: -65.4# param:47
β carbon: 0.007 (0.006)Logl:34332AIC: BIC: # param: 11
β carbon: 0.002 (0.009) 1
R²= 0.22
β carbon: 0.022 (0.015)
β carbon: 0.021 (0.016)²R²= 0.62
Multivariate GARCH models1. DiagonalVech
Cov matrix With C,B,C indefinite, diagonal or scalar
2. BEKKCov matrix
With A and B diagonal
3. Constant Conditional Correlation
Test more parsimonious models2. No GARCH but FGLS: Seemingly Unrelated Regression (corss-sectional)3. Covariances=0 (GARCH and FGLS)4. Common βcarbon for all firms of the same sector5. Aggregated data
Covariance in model Covariance=0
SectorN=Number of firms(Energy regressors in main equation)
DiagVechM Variance target, A,B indefinite
DiagVechM scalar, A,B, indefinite
DiagVech M indefinite, A,B scalar
BEKKM indefinite, A,B diagonal
BEKKM,A,B diagonal
Constant Conditional CorrelationM scalar
FGLS panel Cross-section SUR
DiagVechM,A,B diagonal Univariate Garch per firm
ElectricityN=17(oil, gas, coal, elec)
Mean β carbon : 0.012Q1 β carbon : -0.026 Q3 β carbon : 0.056Wald all β carbon=0:χ²(17)=74.0 P0.0000Wald all β carbon equal:χ²(16)=71.6 P0.0000Logl: 51547AIC :-97.28BIC: -95.72# param:330
Mean β carbon : 0.022Q1 β carbon :-0.007Q3 β carbon : 0.060Wald all β carbon=0:χ²(17)=86.1 P0.0000Wald all β carbon equal:χ²(16)=86.5 P0.0000Logl: 51916AIC :-97.97BIC: -96.41# param:331
Mean β carbon :0.024Q1 β carbon : -0.007Q3 β carbon : 0.059Wald all β carbon=0:χ²(17)=61.1 P0.0000Wald all β carbon equal:χ²(16)=60.9 P0.0000Logl:51739AIC :-97.93BIC: -97.08# param:179
Mean β carbon :0.024Q1 β carbon : -0.007Q3 β carbon : 0.061Wald all β carbon=0:χ²(17)=59.4 P0.0000Wald all β carbon equal:χ²(16)=59.2 P0.0000Logl:51812AIC :-98.01BIC: -97.02# param:211
Mean β carbon :0.017Q1 β carbon : -0.018Q3 β carbon : 0.049Wald all β carbon=0:χ²(17)=83.6 P0.0000Wald all β carbon equal:χ²(16)=83.5 P0.0000Logl:51574AIC :-97.81BIC: -97.46# param: 75
Mean β carbon : 0.030Q1 β carbon -0.002Q3 β carbon : 0.071Wald all β carbon=0:χ²(17)=69.8 P0.0000Wald all β carbon equal:χ²(16)=69.83 P0.0000Logl:51980AIC :-98.33BIC: -97.33# param:211
Mean β carbon : 0.027Q1 β carbon : -0.034Q3 β carbon : 0.077# param : 23
Mean β carbon :0.016Q1 β carbon : -0.015Q3 β carbon : 0.057Wald all β carbon=0:χ²(17)=147.8 P0.0000Wald all β carbon equal:χ²(16)=130.5 P0.0000Logl:51117AIC :-96.95BIC: -96.59# param:75
Mean β carbon :0.016Q1 β carbon : -0.004Q3 β carbon : 0.035# param : 11
Iron&SteelN=13(oil, coal, elec)
Mean β carbon : 0.057Q1 β carbon : 0.042Q3 β carbon : 0.100Wald all β carbon=0:χ²(13)=50.4 P0.0000Wald all β carbon equal:χ²(12)=49.5 P0.0000Logl:36133AIC :-68.25BIC: -67.30# param: 202
Mean β carbon :0.058Q1 β carbon :0.045Q3 β carbon : 0.091Wald all β carbon=0:χ²(13)=55.1 P0.0000Wald all β carbon equal:χ²(12)=51.9 P0.0000Logl:36181AIC :-68.33BIC: -67.38# param:203
Mean β carbon :0.049Q1 β carbon : 0.024Q3 β carbon : 0.090Wald all β carbon=0:χ²(13)=40.0 P0.0001Wald all β carbon equal:χ²(12)=38.4 P0.0001Logl:36056AIC :-68.27BIC: -67.74# param:113
Mean β carbon :0.050Q1 β carbon :0.010Q3 β carbon : 0.079Wald all β carbon=0:χ²()= P0.0000Wald all β carbon equal:χ²()= P0.0000Logl:36162AIC : -68.42BIC: -67.78# param:137
Mean β carbon :0.051Q1 β carbon : 0.022Q3 β carbon : 0.085Wald all β carbon=0:χ²(13)=50.3 P0.0000Wald all β carbon equal:χ²(12)=49.3 P0.0000Logl:35960AIC :-68.21BIC: -68.00# param:59
Mean β carbon : 0.045Q1 β carbon : 0.033Q3 β carbon : 0.070Wald all β carbon=0 χ²(13)=38.67 P0.0002Wald all β carbon equal:χ²(12)=38.06 P0.0002Logl:36256AIC :-68.60BIC:-67.96# param:137
Mean β carbon : 0.077Q1 β carbon : 0.055Q3 β carbon : 0.135# param : 19
Mean β carbon :0.028Q1 β carbon : 0.023Q3 β carbon : 0.054Wald all β carbon=0:χ²(13)=156.8 P0.0000Wald all β carbon equal:χ²(12)=80.87 P0.0000Logl:33711AIC :-63.92BIC: -63.65# param:59
Mean β carbon :0.024Q1 β carbon : 0.006Q3 β carbon : 0.054# param : 10
NonferrousN=5(oil, coal, elec)
Mean β carbon :0.040Q1 β carbon : 0.009Q3 β carbon : 0.084Wald all β carbon=0:χ²(5)=14.5 P0.0129Wald all β carbon equal:χ²(4)=11.1 P0.0250Logl:11738AIC :-23.44BIC: -23.24# param: 42
Mean β carbon : 0.039Q1 β carbon 0.009Q3 β carbon : 0.088Wald all β carbon=0:χ²(5)=13.9 P0.0165Wald all β carbon equal:χ²(4)=10.3 P0.0356Logl:11730AIC :-23.42BIC: -23.22# param:43
Mean β carbon :0.031Q1 β carbon : -0.003Q3 β carbon : 0.0820Wald all β carbon=0:χ²(5)=15.9 P0.0070Wald all β carbon equal:χ²(4)=13.3 P0.0100Logl:11687AIC :-23.4BIC: -23.23# param:29
Mean β carbon :0.032Q1 β carbon :-0.000Q3 β carbon : 0.084Wald all β carbon=0:χ²(5)=16.1 P0.0065Wald all β carbon equal:χ²(4)=12.9 P0.0119Logl:11706AIC :-23.39BIC: -23.21# param:37
Mean β carbon :0.032Q1 β carbon : -0.001Q3 β carbon : 0.083Wald all β carbon=0:χ²(5)=18.3 P0.0026Wald all β carbon equal:χ²(4)=13.3 P0.0098Logl:11689AIC :-23.37BIC: -23.24# param:27
Mean β carbon :0.040 Q1 β carbon : 0.006Q3 β carbon : 0.095Wald all β carbon=0 χ²(5)=18.41 P0.002Wald all β carbon equal:χ²(4)=13.04 P0.011Logl:11735AIC : -23.45BIC:-23.27# param:
Mean β carbon : 0.045Q1 β carbon : 0.008Q3 β carbon : 0.113# param : 11
Mean β carbon :0.036Q1 β carbon : 0.000Q3 β carbon : 0.086Wald all β carbon=0:χ²(5)=22.1 P0.0005Wald all β carbon equal:χ²(4)=9.79 P0.0441Logl:11635AIC :-23.27BIC: -23.14# param:27
Mean β carbon : 0.037Q1 β carbon : 0.015Q3 β carbon :0.066# param : 10
Building materialsN=13(oil, coal, elec)
Mean β carbon : 0.031Q1 β carbon : 0.019Q3 β carbon : 0.068
Mean β carbon : 0.039Q1 β carbon : 0.024Q3 β carbon : 0.075
Mean β carbon :0.028Q1 β carbon : 0.021Q3 β carbon : 0.059
Mean β carbon :0.030Q1 β carbon : 0.031Q3 β carbon : 0.061
Mean β carbon :0.035Q1 β carbon : 0.035Q3 β carbon : 0.069
Mean β carbon : 0.036Q1 β carbon : 0.015Q3 β carbon : 0.080
Mean β carbon : 0.024Q1 β carbon : -0.021Q3 β carbon : 0.081
Mean β carbon :0.017Q1 β carbon : -0.004Q3 β carbon : 0.061
Mean β carbon :0.018Q1 β carbon : -0.001Q3 β carbon :0.026
ChemicalsN=24(oil, gas, coal, elec)
Mean β carbon : 0.036Q1 β carbon :0.010Q3 β carbon : 0.076
Mean β carbon : 0.047Q1 β carbon : 0.019Q3 β carbon : 0.076
Mean β carbon :0.040Q1 β carbon : 0.014Q3 β carbon : 0.083
Mean β carbon :0.043Q1 β carbon : 0.017Q3 β carbon : 0.085
Mean β carbon :0.047Q1 β carbon : 0.018Q3 β carbon : 0.091
Mean β carbon : 0.043 Q1 β carbon : 0.019Q3 β carbon : 0.077
Mean β carbon : 0.055Q1 β carbon : 0.020Q3 β carbon : 0.113
Mean β carbon :0.026Q1 β carbon : -0.004Q3 β carbon : 0.056
Mean β carbon :0.021 Q1 β carbon : 0.013Q3 β carbon :0.039
RefineriesN=12(oil, gas, elec)
Mean β carbon : 0.025Q1 β carbon : 0.018
Mean β carbon : 0.029Q1 β carbon : 0.014Q3 β carbon : 0.038
Mean β carbon :0.027Q1 β carbon : 0.012Q3 β carbon : 0.039
Mean β carbon :0.028Q1 β carbon :0.014Q3 β carbon : 0.035
Mean β carbon :0.025Q1 β carbon : 0.010Q3 β carbon : 0.033
Mean β carbon : 0.027Q1 β carbon : 0.011Q3 β carbon : 0.038
Mean β carbon : 0.046Q1 β carbon : 0.027Q3 β carbon : 0.076
Mean β carbon :0.030Q1 β carbon : 0.020Q3 β carbon : 0.039
Mean β carbon :0.039Q1 β carbon : 0.023Q3 β carbon :0.044
PaperN=13(oil, gas, coal, elec)
Mean β carbon : 0.031Q1 β carbon : 0.011Q3 β carbon : 0.068
Mean β carbon :0.031Q1 β carbon : 0.011Q3 β carbon : 0.068
Mean β carbon : 0.028Q1 β carbon : 0.014Q3 β carbon : 0.060
Mean β carbon :0.026Q1 β carbon : 0.010Q3 β carbon : 0.061
Mean β carbon :0.025Q1 β carbon : 0.016Q3 β carbon : 0.055
Mean β carbon : 0.026Q1 β carbon : 0.001Q3 β carbon : 0.063
Mean β carbon : 0.041Q1 β carbon : 0.007Q3 β carbon : 0.089
Mean β carbon :0.013Q1 β carbon : -0.018Q3 β carbon : 0.045
Mean β carbon :0.010Q1 β carbon : 0.000Q3 β carbon :0.024
All sectorsN=97
Mean β carbon : 0.033Q1 β carbon : 0.004Q3 β carbon : 0.068
Mean β carbon : 0.038Q1 β carbon : 0.012Q3 β carbon :0.074
Mean β carbon : 0.033Q1 β carbon : 0.007Q3 β carbon :0.071
Mean β carbon : 0.034Q1 β carbon : 0.008Q3 β carbon :0.070
Mean β carbon : 0.034Q1 β carbon : 0.001Q3 β carbon :0.069
Mean β carbon : 0.036Q1 β carbon : 0.071Q3 β carbon :0.009
Mean β carbon : 0.045Q1 β carbon : 0.005Q3 β carbon :0.102
Mean β carbon : 0.023Q1 β carbon : -0.004Q3 β carbon :0.057
Mean β carbon : 0.022Q1 β carbon : 0.003Q3 β carbon :0.043
The effect of carbon prices on stock prices for models with firm-specific βcarbon.