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The Effects of National Allocation Plans on Carbon Markets

The release of information in carbon markets at its early state is characterized as being numerous and not scheduled. This paper analyzes the impact of National Allocation Plans announcements on carbon prices and their volatility during the period October 2004 through May 2007, during which time more than 70 announcements were released. In order to adapt event studies methodology to the particularities of our data, a sole series with lots of announcements, we propose the Truncated Mean Model that does not take into account big surprises in the estimation period. The results indicate that news has an influence on carbon prices on both the announcement day and previous days. Additionally, we find no effects of news on returns volatility. Both findings suggest a systematic leakage of information to the market in almost all types of events.