Ángel Pardo Tornero

The Effects of National Allocation Plans on Carbon Markets

The release of information in carbon markets at its early state is characterized as being numerous and not scheduled. This paper analyzes the impact of National Allocation Plans announcements on carbon prices and their volatility during the period October 2004 through May 2007, during which time more than 70 announcements were released. In order to adapt event studies methodology to the particularities of our data, a sole series with lots of announcements, we propose the Truncated Mean Model that does not take into account big surprises in the estimation period. The results indicate that news has an influence on carbon prices on both the announcement day and previous days. Additionally, we find no effects of news on returns volatility. Both findings suggest a systematic leakage of information to the market in almost all types of events.

Information flows among the major stock market areas

The relationship between the index returns of the major stock markets has been analysed in many papers. These studies usually examine lead-lag relationships between markets, without distinguishing the influencing ability and the sensitivity of each of the markets. Additionally, these studies use indices that are not directly comparable - either because of the way the indices are calculated or because of the number of companies and sectors used to construct them. This paper addresses both points. Firstly, all the analyses have been made using homogeneous indices designed by Morgan Stanley Capital International. Secondly, the information flow has been studied by applying the model proposed by Peiro et al. (1998). This model allows us to study the effective influence of one market on another by separating the capability to influence of the first and the sensitivity of the second. The obtained results indicate that during the period 1988-1993, the linkage among the major stocks markets were determined by the sensitivity of the market receiving the information; while in the period 1993-1998, the linkages are determined by the influencing ability.

The Pan-European Holiday Effect

The construction of a single European block in the context of financial markets has caused the different national stock exchanges of the euro area to converge towards one common trading calendar that allows to study whether the holiday effect is a pan-European calendar anomaly or country-specific. By applying simulation methods, we provide evidence of the existence of statistically and economically abnormal positive pre- and post-holiday returns in the Eurozone which are not related to higher than average levels of volatility, but which can be explained by the preference of investors to avoid selling around European holidays.

Modeling the Probability of Informed Trading in the European Carbon Market

We provide evidence of informed trading in the European carbon market. We adapt Easley et al.’s (1996) PIN methodology to the particularities of this market by isolating the trading activity on the two carbon offsets: European Union Allowances (EUAs) and Certified Emission Reductions (CERs). We find that the PIN regularly increases before the publication of the yearly verified-emission reports. CERs exhibit lower average PIN than EUAs. While the PIN of CERs has increased over time, together with its share in total trading activity, EUAs’ PIN has remained pretty stable. Our findings suggest that CERs must not be avoided in any decision or analysis made by researchers, regulators or traders interested in the European carbon market.

Do Carbon Traders Behave as a Herd

This paper analyzes the presence of herding behavior in the European Futures Carbon Market. This is a blind market in which the vast majority of investors are institutional. Both features lead us to study the existence of herding under very restrictive conditions. An intraday trade database has been used in order to analyze this phenomenon at high frequencies. A pattern analysis shows that herding intensifies with the level of speculation and other behavioral biases like psychological prices or price clustering. The reaction of seller initiated trades to the arrival of market news also induces an increase in the degree of herding. Furthermore, we detect higher levels of herding with higher levels of uncertainty and with a larger number of trades. Finally, we show that herding destabilizes the market and leads traders to overreact to these circumstances.

Information Flows Across Wheat Futures Markets

We study information flows across four wheat futures markets on four continents: Zhengzhou Commodity Exchange (ZCE), South African Futures Exchange (SAFEX), Euronext/Liffe, and Kansas City Board of Trade (KCBT). Three main approaches have been applied: cointegration techniques, VAR analysis, and a multiple regression model proposed by Peiro, Quesada, and Uriel (1998) to study information flows among non-synchronous markets. Our results indicate that no long-run links exist among the four markets, that ZCE is by far the most endogenous market, and that Euronext/Liffe is the most exogenous one. Furthermore, the model by Peiro et al. (1998) points to KCBT as the most influential as well as the most sensitive market to giving and receiving information flows from the global wheat system.

Partisan Politics Theory and Stock Market Performance: Evidence for Spain

ABSTRACT This paper examines the influence of Spanish major political events on stock market performance by testing the empirical implications of the existing theories focused on the connection between politics and stock exchanges. On the one hand, our findings give support to the partisan politics theory, since stock returns behave differently depending on the political orientation of the government, not only on the day of the national election but also during their tenure of office. On the other hand, the analytical results demonstrate that there are no abnormal positive returns during the second half of the governments term, which contradicts the opportunistic political business cycle theory. Finally, according to Brown et al.s (1988) Uncertain Information Hypothesis, volatility of stock returns is shown to increase following the arrival of unexpected information.

Size Clustering in European Carbon Markets

This paper documents empirical evidence of size clustering behavior in the European Carbon Futures Market and analyzes the circumstances under which it happens. Our findings show that carbon trades are concentrated in sizes of one to five contracts and in multiples of five. We have observed the existence of price clustering of prices ending in digits 0 or 5, and we have also proved that more clustered prices have more clustered sizes. Finally, the analysis of the key factors of the size clustering reveals that carbon traders use a reduced number of different trade sizes to simplify their trading process when uncertainty is high, market liquidity is poor, and the desire for opening new positions is very strong.

Calendar Anomalies in Stock Index Futures

There exist a large and increasing number of papers that describe different calendar anomalies in stock markets. Although empirical evidence suggests that seasonal effects disappeared after the early 1990s, new studies and approaches assert the continuation of some anomalies in stock indexes. In this paper, we present a comprehensive study of 188 possible cyclical anomalies in S&P 500, DAX and Nikkei stock index futures contracts from 1991 to 2008. Frictions in futures markets, unlike spot markets frictions, make it feasible to produce economically significant profits from trading rules based on calendar effects. By applying a percentile-t-bootstrap and Monte Carlo methods, our analysis reveals that the turn-of-the-month effect in S&P 500 futures contracts is the only calendar effect that is statistically and economically significant and persistent over time.

Open and Closed Positions and Stock Index Futures Volatility

In this paper we analyze the relationship between volatility in index futures markets and the number of open and closed positions. We observe that, in general both positions are positively correlated with contemporaneous volatility, and the opposite effect is detected on the following day for all indexes. Additionally, we observe a stronger positive relationship on days characterized by extreme movements of these contracting movements dominating the market. Finally, our findings suggest that day-traders are not associated to an increment of volatility, whereas uninformed traders, both opening and closing their positions, have to do with a rise in volatility.