Research on Time-Varying Two-Way Spillover Effects Between Carbon and Energy Markets: Empirical Evidence From China

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.

Spillover Analysis of Carbon Market, Crude Oil Market, and Coal Market based on BEKK-GARCH

“…In this paper, the BEKK-GARCH model is used to model the daily return series of China's carbon market price and power coal market price and carbon market price and crude oil market price to explore the direction and intensity of volatility spillovers between the two groups of markets [2]. beckk-GARCH model results obtained are shown below As can be seen from the data in the table, the P-value test results of the correlation coefficients between the carbon market and the power coal market are all insignificant, indicating that there is no volatility spillover effect between the returns in the carbon market and the returns in the power coal market [3] As can be seen from the data in the table, B and B are not zero at the 5% significance level, indicating that both carbon and crude oil markets have volatility agglomeration, which can also prove the existence of ARCH effects in the two markets; A andA are not zero at the 5% significance level, indicating that there are GARCH effects in the two markets, which is also in line with the experimental results of the previous article; A and B are not zero at the 5% significance The values of A and B are not zero at the 5% significance level, indicating that there is a one-way volatility spillover effect from the carbon market to the crude oil market at the 5% significance level; while A and B are not significant, indicating that there is no one-way volatility spillover effect from the crude oil market to the carbon market.…”

Risk Spillovers between China’s Carbon and Energy Markets

“…Qiao et al [38] analyzed the two-way spillover effect between China's carbon market and the energy market by combining the rolling window technique with the DY spillover index for four representative pilot carbon markets, namely, Beijing, Guangdong, Hubei, and Shanghai, and the results show that the spillover effect between China's carbon market and the energy market had significant temporal variability and asymmetry; in addition, the spillover effect of different carbon pilot markets on the energy market had regional heterogeneity. In addition, the spillover effects of different carbon pilot markets on the energy market are regionally heterogeneous, with the volatility spillover effects of the Beijing and Shanghai carbon markets mainly coming from the crude oil futures market, the Guangdong carbon market mainly coming from the new energy market, and the Hubei carbon market mainly coming from the crude oil and electricity markets.…”

Return and Volatility Spillovers of Asian Pacific Stock Markets’ Energy Indices

“…The sharp difference may be due to the fact that increased energy prices might harm the profitability of S&P 500 corporations while not affecting GCE and ECO enterprises (Kanamura, 2019). Prevention of possible risk spillover among carbon and energy markets, might help to construct China's united carbon market and prevent systematic financial problems in the energy market (Qiao et al, 2021). The effectiveness of clean energy asset allocating strategies, as well as the heterogeneous diversification advantages among clean energy stocks sub-sectors, report substantial implications for shareholders, establishing clean energy portfolios to achieve investment objectives (Kuang, 2021).…”