EU carbon futures market: the aspects of price discovery

The main purpose of this article is to study the relationship between the spot and future price of European emission allowances in order to test market efficiency hypothesis and determine which price leads the price discovery process. The work consists of several parts: presentation of theoretical background of model cost of carry; validation of cost of carry model assumptions; analysis ofprice development and conclusion. The cost of carry and cointegration theory is provided as weil as overview of the related literature and existing research. The empirical examination reveals structural breaks in data and evidence that spot and futures prices are linked by the cost-of- carry approach in the second half of the analysed periodo The examination of price development in the market indicated futures price leadership. Conclusion summarized the main results of the performed research