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Using CO2 Emission Allowances in Equity Portfolios
Stockholm University, Faculty of Social Sciences, Stockholm Business School.
Stockholm University, Faculty of Social Sciences, Stockholm Business School.
Stockholm University, Faculty of Social Sciences, Stockholm Business School.
2015 (English)In: Handbook of Environmental and Sustainable Finance / [ed] Vikash Ramiah & Greg N. Gregoriou, Amsterdam: Academic Press, 2015, 1Chapter in book (Refereed)
Abstract [en]

In this chapter, we show that while the carbon emission allowances futures market, which is still emerging, has gained relative little popularity among investors it can present attractive diversification opportunities for investors. Our findings show that the exposure of these futures returns to equity returns as well as the value factor is low but increases with stock market stress. As our further analysis suggests that investors can also profit from negative convenience yield in carbon emission futures by taking short positions in them, the strategy can be an attractive addition to equity portfolios.  We note that potential reasons for the lack of popularity are poor liquidity, lack of investors’ attention to the investments, investment ambiguity, and investment constraints. Nevertheless, carbon emission allowances and environmental investments of its kind can be important portfolio diversifiers in future.

Place, publisher, year, edition, pages
Amsterdam: Academic Press, 2015, 1.
National Category
Economics and Business
Identifiers
URN: urn:nbn:se:su:diva-124644ISBN: 9780128036150OAI: oai:DiVA.org:su-124644DiVA: diva2:890430
Available from: 2016-01-03 Created: 2016-01-03 Last updated: 2016-01-04Bibliographically approved

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