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<p>This paper introduces a novel, relative liquidity measure, derived from the post-trade impact of observable market events, such as trades and orders. This is used to identify what level (threshold) of trading intensity is considered high, relative to prevailing market conditions. This is then used to investigate the reaction of algorithmic trading in the EU ETS to liquidity signals. The level of trading intensity (threshold) above which we observe more algorithmic trading is reversely proportional to trading activity, suggesting that algorithms become more “reactive” in more active market conditions. However, this threshold is elevated significantly after the introduction of the pre- and post-trade transparency requirements imposed by the MiFID II rules, implying that algorithms become systematically less “reactive” overall. This suggests that the major issue in carbon pricing in the EU ETS is not liquidity per se, but how it is related to signal clarity and, ultimately, to information diffusion.</p>

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Algorithms and the endless pursuit of liquidity patterns in the european carbon market

  • 期刊论文

  • 发表日期：

    2026年5月25日

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  • Iordanis Angelos Kalaitzoglou,
  • Elias Demetriades

摘要

This paper introduces a novel, relative liquidity measure, derived from the post-trade impact of observable market events, such as trades and orders. This is used to identify what level (threshold) of trading intensity is considered high, relative to prevailing market conditions. This is then used to investigate the reaction of algorithmic trading in the EU ETS to liquidity signals. The level of trading intensity (threshold) above which we observe more algorithmic trading is reversely proportional to trading activity, suggesting that algorithms become more “reactive” in more active market conditions. However, this threshold is elevated significantly after the introduction of the pre- and post-trade transparency requirements imposed by the MiFID II rules, implying that algorithms become systematically less “reactive” overall. This suggests that the major issue in carbon pricing in the EU ETS is not liquidity per se, but how it is related to signal clarity and, ultimately, to information diffusion.