Before revision:  Market observers attribute this development to the ETS reform , naming anticipation of the tightening of allowance supply through the Market Stability Reserve (MSR) and speculative buying as main price drivers. The former suggests an increasing role of fundamentals, while the latter could give rise to investor overreaction and mispricing. Analyzing the price run up using the anticipative dating algorithm by Phillips et al. (2015), we obtain first empirical results that detect explosive behavior in prices from February 2018 on. Such behavior could reflect an adaption process, or be an indicator for market exuberance during the inflationary phase of a bubble. Testing for the former, we neither find that abatement-related fundamentals display equally explosive behavior, nor a change in coefficients using a complementary time-varying non-parametrical regression model.
After revision:  Regulators attribute this to a comprehensive reform in the same year, and are confident the new price level reflects an anticipated tighter supply of allowances. We ask if this is indeed the case, or if it is an overreaction of the market driven by speculation. We combine several econometric methods - time-varying non-parametrical regression model.