Abstract
ABSTRACT This paper analyzes tail risk interdependence among four regional carbon markets in China to investigate the effect of exogenous shocks on local connectedness. We utilize a time-varying copulas approach and find that: (i) the Shenzhen carbon market has the highest level of tail risk due to the lower liquidity and weaker resilience. (ii) Carbon markets where prices are more responsive to information have higher levels of tail risk dependence. (iii) Compared to the China – US trade dispute and the armed conflict in Europe, the shocks from the extreme weather and the COVID-19 outbreak can prominently strengthen tail risk.
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