What happens to the relationship between EU allowances prices and stock market indices in Europe?

The stock market may reflect the economic conditions of an economy and a positive economic situation is expected to improve the companies' profits, which makes company shares more attractive since the expected dividends to shareholders will be larger. Theoretically, higher economic activity lea...

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Bibliographic Details
Published in:Energy economics 2019-06, Vol.81, p.13-24
Main Author: Jiménez-Rodríguez, Rebeca
Format: Article
Language:English
Subjects:
Allowances
Causality
Companies
Dividends
Economic activity
Economic conditions
Economics
Energy demand
Energy economics
EUA spot prices
Foreign exchange rates
Granger-causality
Markets
Prices
Pricing
Profits
Securities markets
Stock exchanges
Stock markets
Stockholders
Time-varying parameters
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Summary:The stock market may reflect the economic conditions of an economy and a positive economic situation is expected to improve the companies' profits, which makes company shares more attractive since the expected dividends to shareholders will be larger. Theoretically, higher economic activity leads to higher energy demand and, consequently, higher carbon emissions, which give rise to higher EU allowances (EUA) prices. Therefore, the stock market and EUA prices seem to be connected, with causality going from the stock markets to EUA prices. This paper formally tests for it, showing that the causality effectively runs from the stock market to the European Climate Exchange market. Furthermore, the paper studies the effects of the evolution of European stock markets on the EUA spot prices.
ISSN:0140-9883
1873-6181
DOI:10.1016/j.eneco.2019.03.002