The time-frequency connectedness among carbon, traditional/new energy and material markets of China in pre- and post-COVID-19 outbreak periods

Abstract

This paper studies static and dynamic connectedness among carbon, traditional (oil and coal)/new energy and material (iron, aluminum, cement, and plastic) markets based on the Diebold Yilmaz (2012) method and the Barunik and Krehlik (2018) method. First, total connectedness is larger in the short term and enhanced after the COVID-19 outbreak. Second, material markets exhibit higher explanatory power; plastic prices, for example, have played a leading role during the pandemic crisis according to the networks. Third, the spillover of China's carbon markets post-outbreak is about twice as large as pre-outbreak, showing positive net connectedness in the medium and long term. Carbon markets' spillover is relatively small and mainly contributes to new energy. Finally, time-varying analysis demonstrate that the positive and negative values of time-varying connectedness peak due to economic shocks or global emergencies. High connectedness with longer duration may be caused by a sudden emergency rather than anticipated events. These findings can offer significant benefits to policymakers, high-carbon businesses and investors in crafting appropriate strategies with heterogeneous frequency horizons.