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Carbon portfolio management

Afonin, A., Bredin, D., Cuthbertson, K. ORCID: 0000-0003-2004-2630, Muckley, C. B. and Nitzsche, D. (2018). Carbon portfolio management. International Journal of Finance and Economics, doi: 10.1002/ijfe.1620


The aim of the European Union's Emissions Trading Scheme (EU ETS) is that by 2020, emissions from sectors covered by the EU ETS will be 21% lower than in 2005. In addition to large CO 2 emitting companies covered by the scheme, other participants have entered the market with a view of using emission allowances for the diversification of their investment portfolios. The performance of this asset as a stand alone investment and its portfolio diversification implications will be investigated in this paper. Our results indicate that the market views Phases 1, 2, and 3 European Union allowance futures as unattractive as stand alone investments. In a portfolio context, in Phase 1, once the short-selling option is added, there are considerable portfolio benefits. However, our results indicate that these benefits only existed briefly during the pilot stage of the EU ETS. There is no evidence to suggest portfolio diversification benefits exist for Phase 2 or the early stages of Phase 3.

Publication Type: Article
Additional Information: This is the peer reviewed version of the following article: Afonin, A., Bredin, D., Cuthbertson, K., Muckley, C. B. & Nitzsche, D. (2018). Carbon portfolio management. International Journal of Finance and Economics, which has been published in final form at This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
Departments: Cass Business School > Finance
Text - Accepted Version
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