When size matters: Clustering in the European Carbon Market

This paper documents evidence of size clustering behavior in the European Carbon Futures Market and analyzes the circumstances under which it happens. Our findings show that carbon trades are concentrated in sizes of one to five contracts and in multiples of five. We have observed the existence of price clustering of prices ending in digits 0 or 5, and we have also proved that the more clustered prices have more clustered sizes. Finally, the analysis reveals that traders use a reduced number of different trade sizes when uncertainty is high, market liquidity is poor, and the desire for opening new positions is very strong.