The potential for exchange-traded futures on recycled materials to improve recycling efficiency

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Recycling has substantial environmental and economic benefits, but the recycling industry is relatively inefficient. Approximately half of all recyclable material is not actually recycled, and this inefficiency is economically and environmentally costly. This paper investigates the potential for exchange-traded futures on recycled materials to increase efficiency for the recycling industry by improving the market quality for firms that buy and sell recycled materials. The aim of this study is to statistically analyze a novel data set of prices for recycled materials to demonstrate the potential efficiency gains to introducing exchange-traded futures on recycled materials. The theoretical basis for this financial innovation is numerous previous studies showing that introducing exchange-traded derivatives improves the market quality of the underlying asset. The results of the analysis show that price volatility of recycled materials is generally high, with monthly standard deviation greater than 6%. Price volatility of recycled materials is excessive compared to price volatility of analogous new materials. Also, stock price volatility of waste management firms is positively related to price volatility in recycled materials. Price volatility of recycled materials explains 12% of the excess stock price volatility for waste management firms. This paper includes a practical discussion of proposed specifications and standards for these new financial contracts and plans for further research studies. Along with previous studies on the listing of exchange-traded derivatives, the conclusion of the statistical analysis is that there are large potential economic and environmental benefits to listing exchange-traded futures on recycled materials.

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    • Figure 1. PCM price volatility
    • Figure 2. Price volatility for new and recycled products
    • Figure 3. Price volatility for waste management stocks and the S&P500
    • Table 1. Summary statistics on monthly PCM prices
    • Table 2. Volatility of waste management firm stock prices and PCM prices
    • Conceptualization
      Jordan Moore, Daniel Folkinshteyn, Jordan P. Howell
    • Data curation
      Jordan Moore, Daniel Folkinshteyn, Jordan P. Howell
    • Formal Analysis
      Jordan Moore, Daniel Folkinshteyn, Jordan P. Howell
    • Funding acquisition
      Jordan Moore, Daniel Folkinshteyn, Jordan P. Howell
    • Investigation
      Jordan Moore, Daniel Folkinshteyn, Jordan P. Howell
    • Methodology
      Jordan Moore, Daniel Folkinshteyn, Jordan P. Howell
    • Project administration
      Jordan Moore, Daniel Folkinshteyn, Jordan P. Howell
    • Resources
      Jordan Moore, Daniel Folkinshteyn, Jordan P. Howell
    • Software
      Jordan Moore, Daniel Folkinshteyn, Jordan P. Howell
    • Supervision
      Jordan Moore, Daniel Folkinshteyn, Jordan P. Howell
    • Validation
      Jordan Moore, Daniel Folkinshteyn, Jordan P. Howell
    • Visualization
      Jordan Moore, Daniel Folkinshteyn, Jordan P. Howell
    • Writing – original draft
      Jordan Moore, Daniel Folkinshteyn, Jordan P. Howell
    • Writing – review & editing
      Jordan Moore, Daniel Folkinshteyn, Jordan P. Howell