Accessibility navigation

Liquidity and market efficiency in the world’s largest carbon market

Ibikunle, G., Gregoriou, A., Hoepner, A. and Rhodes, M. (2016) Liquidity and market efficiency in the world’s largest carbon market. The British Accounting Review, 48 (4). pp. 431-447. ISSN 0890-8389

Text - Accepted Version
· Available under License Creative Commons Attribution Non-commercial No Derivatives.
· Please see our End User Agreement before downloading.


It is advisable to refer to the publisher's version if you intend to cite from this work. See Guidance on citing.

To link to this item DOI: 10.1016/


We investigate liquidity and market efficiency on the world's largest carbon exchange, IntercontinentalExchange Inc.’s European Climate Exchange (ECX), by using intraday short-horizon return predictability as an inverse indicator of market efficiency. We find a strong relationship between liquidity and market efficiency such that when spreads narrow, return predictability diminishes. This is more pronounced for the highest trading carbon futures and during periods of low liquidity. Since the start of trading in Phase II of the EU Emissions Trading Scheme (EU-ETS) prices have continuously moved nearer to unity with efficient, random walk benchmarks, and this improves from year to year. Overall, our findings suggest that trading quality in the EU-ETS has improved markedly and matures over the 2008–2011 compliance years.

Item Type:Article
Divisions:Henley Business School > ICMA Centre
ID Code:53226


Downloads per month over past year

University Staff: Request a correction | Centaur Editors: Update this record

Page navigation