Time-Varying and Scale-Dependent Informational Efficiency of the European CO2 Emissions Market: An Analysis Based on Singular Value Decomposition Entropy

Abstract

This work examined the informational efficiency of the European CO2 emission trading market for the different implementation phases in the period 2008–2022:Q3. The approach is based on a bootstrap singular value decomposition (SVD) approach and the analysis was conducted for a rolling window to assess the time-varying efficiency and over different time scales. The impact of the COVID-19 lockdown and the Russia–Ukraine conflict was evaluated. The results showed that the informational efficiency changes over time and scales, which is in line with adaptive market hypothesis (AMH) notions. High market efficiency was exhibited in Phase II (2008–2012), but large deviations from efficiency, especially for quarterly scale, were exhibited in Phase III. However, Phase IV has shown a behavior consistent with informational efficiency. The COVID-19 outbreak negatively impacted informational efficiency. On the other hand, it seems that the Russia–Ukraine conflict has improved informational efficiency due to the European decisions to move to energy independence policies. The findings in this study suggest that the European carbon market is gradually attaining a state of financial maturity.