High-Order Moment Contagion of the Carbon Market: A Heterogeneity Analysis of Market Volatility Trend

Abstract

Information asymmetry and extreme events shocks can lead to the phenomenon of significant carbon market contagion. However, the existing studies mainly focus on the low-order moment of carbon price, making it difficult to reveal the risk contagion characteristic caused by irrational behaviors and policy shocks. This article takes market skewness and kurtosis into the research framework and constructs the FR, CS, and CK statistical model to detect the contagion in correlation channel, coskewness channel, and cokurtosis channel, respectively. The contribution of this article is to reveal the significant high-order moment contagion channel and strength of carbon market to its infected market under different market volatility trends. The results show significant contagion is widespread from the carbon market to its infected markets through the channels of coskewness and cokurtosis in different volatility trends. Additionally, the contagion strength in volatility rapid and slowly rise trend is generally higher than in the volatility rapid and slowly decline trend. That is to say, the shock of market irrationality and external events in the carbon market measured by the high-order moment contagion channels are essential risk factors that affect its infected markets. Those results convince that the acceptance of significant contagion sourced from the carbon market varies for different infected markets.