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Deborah Cotton

First Name: Deborah
Surname: Cotton
Department Dept of Economics
Supervisor(s): Professor Stefan Trüeck ,

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Paper Title

Ambiguity in Markets: A Test in an Australian Emissions Market


Analysis of the Relative Efficiencies of Alternative Trading Architectures/ Platforms in Terms of GHG Emissions Valuation


To test for the effect of ambiguity in the Mandatory Renewable Energy Target Scheme market.

The detrimental effect of ambiguity to the efficiency of financial markets has been discussed and written about by academics and practitioners since at least the early 1990’s. This paper tests the hypothesis that information reduces the ambiguity surrounding investor participation in Australia’s largest emissions trading scheme. This market was chosen due to the high level of ambiguity surrounding Government policy and the ability to determine the factors likely to reduce ambiguity. We find that information does reduce ambiguity as shown by reduced bid ask spreads, increased relative trading volume and an increased number of trades.


To the best of our knowledge this is the first test in an operating market of the effect of ambiguity.

Key literature/theoretical perspective

Behavioural finance theory on ambiguity in financial markets, Australian information regarding climate change initiatives and theory behind efficient markets.


Regression analysis was conducted to determine a relationship between informational effects and the bid-ask spread, relative volume, number of trades and the prices in the emissions trading scheme.

Practical and Social implications

These are two-fold, firstly it provides a practical application of the theory surrounding ambiguity in financial markets in an readily testable market. Secondly it provides evidence of the implications on the effectiveness of the emissions market in Australia of the uncertainty surrounding policy on climate change.


Climate change, ambiguity, market efficiency