Carbon and safe-haven flows

Carbon and safe-haven flows

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Carbon and safe-haven flows

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Palao Sánchez, Fernando; Pardo Tornero, Ángel
This document is a artículoDate2022

This paper explores the role of European Union Allowances (EUAs) as a safe haven for a range of assets and analyses the effect of safe-haven flows on the European carbon futures market. In particular, we demonstrate that EUAs can be considered a refuge against fluctuations in corporate bonds, gold and volatility-related assets in periods of market turmoil. Furthermore, we have shown that extremely bearish and bullish movements in those assets for which the EUA acts as a safe haven induce excess volatility in carbon markets, higher carbon trading volume and larger than normal EUA bid-ask spreads. These findings support the idea that some traders, by considering carbon futures as a refuge asset, induce safe-haven flows into the carbon market. The presence of these flows provides additional insights into the financialisation of the European carbon futures market.

    Fernando Palao, Ángel Pardo. Carbon and safe-haven flows[J]. Green Finance, 2022, 4(4): 474-491.

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