compare BMG factor to EU ETS

[sichen1234]

Compare the BMG factor to the historical pricing of the EU Emissions Trading Scheme futures to determine if the EU ETS futures are suitable as a BMG factor.

The EU ETS can be converted into a BMG factor by calculating its price change, with a positive price change being a negative BMG return and negative pric echange being a positive BMG return, since increases (decreases) in emissions prices should lead to worse (better) performance of "brown" stocks vs "green" stocks.

This can be based on correlation of EU ETS with the BMG factor and testing it as a model variable following the steps in #4

[sichen1234]

I've uploaded a file data/bmg_eu_ets.csv Please run the analysis from #4 to see how it does as a BMG factor.

[sichen1234]

The EU ETS price returns have no correlation with the other model factors, which is good:

However, its incremental R2 is low compared to that of the CARIMA BMG factor from #4:

For example, on the MSCI, the increase in R2 is

• All sectors - 0.0097 vs 0.0257
• Energy - 0.00965 vs 0.0377

The carbon risk factor for CVX (Chevron), Exxon (XOM), Schlumberger (SLB), BP (BP), and Shell (RDAS.AS) using EU ETS are all statistically not significant:

[sichen1234]

There is also no correlation between the EU ETS prices and the BMG factors, not surprising given the above results: