Abstract
Carbon price and coal price are key variables in management and risk decisions in activities related to the burning of fossil fuels. Different major players in the carbon market, such as companies, government and investors, have different time horizons. In this paper, we will use innovative continuous wavelet analysis tools to study the relationship between carbon price series and coal price series in the time-frequency dimensions in a Chinese carbon market. We find that several resonant periods appear between carbon price series and coal price series, the difference phase of two variables is in a highly significant level and the wavelet coherence is about 0.9. Besides, the arrow shows it direction to the lower right, within the resonant period less than 4.5 months, indicates that the coal price fluctuation leading the carbon price fluctuation. In China, emission trading system is excellent politic design to achieve the goal of the carbon emission reduction and it is essential to maintain a stable carbon market in order to prevent the abnormal price fluctuations.
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