Analyzing spillover effects between carbon and fossil energy markets from a time-varying perspective

Xu Gong, Rong Shi, Jun Xu and Boqiang Lin ()

Applied Energy, 2021, vol. 285, issue C, No S030626192031758X

Abstract: The carbon market is closely related to fossil energy markets, but few studies focus on the intensity and direction of the time-varying spillover effects, the time delaying and periodicity between the two classes of markets. This paper uses the time-varying vector parameter autoregressive model with stochastic volatility (TVP-VAR-SV model) and impulse response function to study these issues based on the weekly data of European carbon futures prices and three fossil energy (oil, coal, and natural gas) futures prices. The empirical results indicate that: Firstly, there are obvious spillover effects between the carbon market and fossil energy markets, in which the strength and direction are time-varying and asymmetrical. Secondly, as a whole, the coal market has the greatest impact on the carbon market. Finally, the duration of the time-varying spillover effects between the carbon market and fossil energy markets is around three weeks, and the spillover effect diminishes over time. Especially, the time-varying spillover effect is most significant in the case of one-week lag. The above results can provide practical advice for investors, relevant companies and policymakers. Moreover, it can improve the carbon market mechanism to achieve the purpose of emission reduction.

Keywords: Time-varying spillover effects; Time lag; Periodicity; TVP-VAR-SV model; Impulse response function (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (58)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S030626192031758X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:appene:v:285:y:2021:i:c:s030626192031758x

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/journaldescription.cws_home/405891/bibliographic
http://www.elsevier. ... 405891/bibliographic

DOI: 10.1016/j.apenergy.2020.116384

Access Statistics for this article

Applied Energy is currently edited by J. Yan

More articles in Applied Energy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().