Review Reports - Forecasting the Volatility of European Union Allowance Futures with Climate Policy Uncertainty Using the EGARCH-MIDAS Model

Round 1

Reviewer 1 Report

The paper introduces the EGARCH-MIDAS-CPU model and applies it for the construction of volatility forecasts of European Union allowance futures. The proposed model is a small modification of the existing models. The paper contains some errors that need to be corrected.

In equations there are presented models with lags (1,1). It should be stated in names of the models, e.g. GARCH(1,1).

In equation (11) there is lack of alpha parameter.

I wouldn’t name the RV in equation (7) as realized volatility but monthly volatility. In recent literature the realized volatility is calculated from intraday prices.

The description of Section 4 is not clear. What is the period used in this study?

The fourth point in the literature has no authors.

Author Response

Dear Editor and Reviewer,

ID 1656891

Forecasting the volatility of European Union allowance futures with climate policy uncertainty using the EGARCH-MIDAS model.

We would like to thank the reviewer for the insightful comments that are extremely helpful for improving the quality of our paper. We have carefully studied the comments and suggestions and revised our paper accordingly. We hope the paper now satisfies the requirements for publication at Sustainability.

All changes made to the text are in red. Point-to-point responses to the reviewer’s comments are listed below. We appreciate your consideration sincerely.

Author Response File: Author Response.pdf

Reviewer 2 Report

The topic is interesting and has wider practical applications. The authors have put their best efforts to execute this paper. However, I have the following suggestions for the sake of improvement of the undertaken study:

1) The logical sequence of the abstract should be as 1) objectives, 2) methodology, 3) Findings, 4) conclusion and 5) implications. Thus, the authors should also rewrite the abstract in this sequence.

2) The authors did not establish the motivation, significance, and novelty of the undertaken study. The authors are suggested to improve this important factor in the "Introduction" section.

3) The literature should be presented in audit forms, and it should be linked with the objective of this paper. In the methodology section data, collection sub-section should be added.

4) The practical, theoretical and societal implications should be discussed after the conclusion, and in the light of the conclusion and discussions.

5) The limitations and potential areas of future studies should be discussed in the end.