Abstract
With the improvement of China’s carbon emission trading system, the spillover effect between carbon and energy markets is becoming more and more prominent. This paper selects four representative pilot carbon markets, including Beijing (BEA), Guangdong (GDEA), Hubei (HBEA) and Shanghai (SHEA). And three representative energy markets, including Crude Oil Futures (SC), power index (L11655) and China Securities new energy index (NEI). Combining the rolling window technology with DY spillover index, set a 50-weeks rolling window to measure the spillover index, and deeply analyze the time-varying two-way spillover effect between China’s carbon and energy markets. The results show that the spillover effect between China’s carbon and energy markets has significant time variability and two-way asymmetry. The time-varying spillover effect of different carbon pilot markets on the energy market has regional heterogeneity. The volatility spillover effect of Beijing and Shanghai carbon markets mainly comes from the crude oil futures market, Guangdong carbon market mainly comes from the new energy market, and Hubei carbon market mainly comes from crude oil and electricity market. The above research results contribute to the prevention of potential risk spillover between carbon and energy markets, which can promote the establishment of China’s unified carbon market and the prevention of systemic financial risks in energy market.
Highlights
Climate change brought about by the increase of carbon emissions poses a serious threat to the ecosystem
The results showed that West Texas Intermediate (WTI) returns are negatively correlated with oil volatility index (OVX) in most cases, OVX has a significant risk spillover effect on WTI returns, and conditional var (CoVaR) has an asymmetric effect on the extreme fluctuations of different OVX
This paper adopts the method improved by Diebold and Yilmaz (2012, 2014), and uses the DY spillover index model based on generalized value at risk (VaR) to measure the time-varying two-way spillover effect between China’s carbon and energy markets
Summary
Climate change brought about by the increase of carbon emissions poses a serious threat to the ecosystem. Raising the carbon price can reduce the carbon emission of the thermal power industry The carbon market and energy market have significant time-varying characteristics in the direction and intensity of volatility spillover (Chevallier, 2012), especially when impacted by emergencies, the spillover effect is significantly higher than that in other periods, which indicates that there is a structural break (Li et al, 2015; Lin and Chen, 2019). There is a significant two-way causal relationship between carbon and energy markets, which is mainly reflected in the dynamic spillover effect between crude oil, natural gas and carbon market (Chevallier, 2012). We provide new evidence for the existing literature to prove that the volatility spillover between carbon and energy markets has two-way time-varying characteristics. The spillover index model is a contribution, previous literature dealt mostly with the Copula and GARCH models, whereas this paper applied the spillover index model combined with rolling window technology, and its advantage is that it can more accurately measure the timevarying spillover effect between carbon and energy markets
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