Volatility Spillover and Dynamic Correlation Between the Carbon Market and Energy Markets

Chen, Yufeng; Qu, Fang; Li, Wenqi; Chen, Ming‐Hui

doi:10.3846/jbem.2019.10762

Cited by 35 publications

(21 citation statements)

References 45 publications

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“…In other words, the incentive to use biofuels is that they release relatively less carbon than fossil energy sources. Chao et al [33] argued that applying carbon emission policies to airlines could lead to a transition to biofuels in the aviation sector in the U.S. Chen et al [34] showed that after the global financial crisis of 2008, the correlation among the EUA, natural gas and coal markets has weakened, but their volatility has increased.…”

Section: Literature Reviewmentioning

confidence: 99%

Dynamic Spillover and Hedging among Carbon, Biofuel and Oil

Lee

Yoon

2020

Energies

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In recent years, there has been growing interest in the market interactions between carbon (or clean/renewable energy) and traditional fossil energy such as coal and oil, but few studies have discussed their dynamic volatility spillover and time-varying correlation. To investigate these issues, we used the weekly data of the European Union carbon emission allowance (EUA) futures, biofuel and Brent oil prices from 25 October 2009 to 5 July 2020. We employed the vector autoregressive-generalized autoregressive conditional heteroscedasticity (VAR-GARCH) model with the Baba, Engle, Kraft and Krone (BEKK) specification. Our main findings are summarized as follows: First, we identified the sudden changes and the volatility persistence in the EUA, biofuel, and Brent oil markets, and also confirmed that the volatility of the markets has changed significantly over time. Second, we found a weak volatility spillover effect among the three markets, and a strong spillover effect between the EUA and Brent oil markets. In particular, the effect of volatility spillover from the Brent oil market to the EUA market was the strongest than the other cases. Lastly, in financial market, by holding the EUA and energy sources together as assets, investors can effectively hedge their investment risk. The possibility of hedging is more pronounced between the EUA and biofuel markets.

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Section: Literature Reviewmentioning

confidence: 99%

Dynamic Spillover and Hedging among Carbon, Biofuel and Oil

Lee

Yoon

2020

Energies

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“…Chao et al [10] argued that implementing emissions policy for U.S. airlines could incentivize adoption of biofuels. Chen et al [11] showed that the correlation between the EUA and natural gas, coal became weaker and more volatile after the global financial crisis in 2008.…”

Section: Literature Reviewmentioning

confidence: 99%

Dynamic Spillover and Hedging among Carbon, Biofuel and Oil

Lee¹,

Yoon²

2020

Preprint

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With the rapid spread of carbon trading in the global economy, the interactions of prices between carbon (or clean/renewable energy) and traditional fossil energies such as coal and oil have raised growing attention, but little research have discussed their dynamic volatility spillover and time-varying correlation. The purpose of this study is to investigate these issues, for the weekly data of EUA futures, Biofuel and Brent oil prices from 25 October 2009 to 5 July 2020. We employ the VAR-GARCH model with the BEKK specification. Our results are summarized as follows. At first, we identified the sudden changes and the volatility persistence in the three markets, and also confirmed that the volatility of the markets has changed significantly over time. Secondly, we find that there are a weak volatility spillover effect among the three markets, while a strong spillover effect between the EUA and Brent oil markets. Lastly, in financial markets, the EUA can be used as a hedging portfolio for the Biofuel and Brent oil markets. These results can help investors to well compose their portfolios and manage their investment risks, and help potential pollutant emission sources to join in carbon market in a cost-effective way.

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“…Global commodity trading has also become an essential and important component of investors' portfolios (Yao and Kuang, 2019). For example, like Chen, Qu, Li, and Chen (2019) states, the carbon (coal) market become one of the most promising markets for investors.…”

Section: Introductionmentioning

confidence: 99%

“…emphasised the reasons for the fluctuation of coal prices in recent years as mainly due to the ongoing debate surrounding the use of coal in comparison to cleaner alternatives. Also,Chen et al (2019) noted that higher coal prices are connected with the sharp and sustained increase of energy prices overall.…”

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confidence: 99%

Assessment of the Impact of Hard Commodity Prices Changes on Inflation in European Union Countries

Lapinskaitė¹,

Miečinskienė²

2020

CEBR

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This article analyses the impact of the changes in hard commodity prices in the world commodity exchanges on the variation of countries' general price level. In other words, this article aims to determine the impact of hard commodity prices changes on inflation. In this paper, all countries of the European Union (EU) are included in the research, and case analysis is done accordingly. The methodology applied is the following: a study of the recent scientific literature, processing and systemization of statistical data, correlation analysis and Granger causality test. The results of the research show that price changes of selected commodities in world commodity exchanges have no absolute dependence on the variation of the general price level in EU countries in the long period. Natural gas should be distinguished, whose price fluctuations in the commodity exchange market show a positive correlation with 14 EU countries' CPI changes. In addition, the research shows that Lithuania's inflation has been affected by all five selected commodities' prices fluctuations. UK and Romanian inflation relate to four of five selected commodities' prices fluctuations.

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Volatility Spillover and Dynamic Correlation Between the Carbon Market and Energy Markets

Cited by 35 publications

References 45 publications

Dynamic Spillover and Hedging among Carbon, Biofuel and Oil

Dynamic Spillover and Hedging among Carbon, Biofuel and Oil

Dynamic Spillover and Hedging among Carbon, Biofuel and Oil

Assessment of the Impact of Hard Commodity Prices Changes on Inflation in European Union Countries

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