Using high-frequency data from the European Climate Exchange (ECX), we examine the determinants of price impact of ¤21 billion worth of block trades during 2008–2011 in the European carbon market. We find that wider bid-ask spreads and volatility are characterised by a smaller price impact. Larger levels of price impact are more likely to occur during the middle of the trading day, specifically the four-hour period between 11 a.m. and 3 p.m., than during the first or final hours. Purchase block trades induce a relatively smaller price impact on price run-up, while sell block trades exhibit a larger price impact on price run-up. We conclude that block trades on the ECX induce less price impact than in equity or conventional futures markets, and that a significant proportion of the effects contradict findings on block trades in those markets; thus, we provide the first evidence of the curious bent to block trading in the European Union emissions trading scheme.
- carbon futures
- block trades
- price impact
- high-frequency trades
- European Union emissions trading scheme (EU-ETS)
Gregoriou, A., Ibikunle, G., & Pandit, N. (2014). Price impact of block trades: the curious case of downstairs trading in the EU emissions futures market. European Journal of Finance, 22(2). https://doi.org/10.1080/1351847X.2014.935871