The joint behavior of internal and external system brings out a high complexity of the carbon and oil price interactions, such as non-linearity and multi-frequency. This paper innovatively proposed a time-frequency mechanism between carbon and oil markets from the two aspects of internal system and external factors, and introduced a novelty partial wavelet analytics to explore their dynamic multi-scale interactions. We selected the European carbon and Brent oil futures prices data from March 2009 to December 2020, with the consideration of several necessary control variables from the external surroundings. Our findings point to a stable and strong in-phase relationship between the two markets, with oil leading at medium and lower frequencies. However, the mutual leading relationships are especially sensitive during abnormal political events and periods of financial recession and global emergency, which are observed at different periods for intermediate horizons. What is more, the interactions are more diversified and feebler at short-timescale. Under the vision of carbon neutrality, these evidences provide invaluable guidance for regulators to structure a more flexible adjusting mechanism for the risk control of carbon markets, and also help investors to hedge risk aimed at different time horizons.
The cross-correlation between carbon spot and futures markets reflects the risk conduction mechanism between the two markets. Deeply depicting and analyzing this risk conduction mechanism is of great significance for investors to carry out risk management strategies. Considering the nonlinear and asymmetric characteristics of cross-correlation between carbon spot and futures markets, this paper applies multifractal cross-correlation analysis method to investigate the cross-correlation between carbon spot and futures markets. Firstly, through Empirical Mode Decomposition (EMD)-Multifractal Detrended Cross-Correlation Analysis (MF-DCCA) detection, it is found that there is an obvious cross-correlation between carbon spot and futures markets, and the cross-correlation has multifractal characteristic. Secondly, by using EMD-time delay-DCCA method, we find the conduction direction between carbon spot and futures markets is bidirectional, and the futures market has a greater impact on the spot market in the short term. Thirdly, through using EMD-MF-ADCCA method, we find the cross-correlation between the two markets is asymmetric, and the cross-correlation between the two markets is more significant when carbon market is in a downward trend than in an upward trend. Fourthly, through constructing EMD-time delay-ADCCA model, we find that there is a two-way asymmetric conduction effect between carbon spot and futures markets when the lag period is short, and when the carbon market is in a downward trend, the conduction effect between the two markets is stronger. However, with the extension of time lag, the conduction effect of the two markets no longer presents obvious asymmetric characteristics.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.