The Correlation Analysis of Futures Pricing Mechanism in China’s Carbon Financial Market

Chunguang Sheng, Guangyu Wang, Yude Geng and Lirong Chen
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Chunguang Sheng: College of Economics and Management, Northeast Forestry University, Harbin 150040, China
Guangyu Wang: Faculty of Forestry, the University of British Columbia, Vancouver, BC V6T 1Z4, Canada
Yude Geng: College of Economics and Management, Northeast Forestry University, Harbin 150040, China
Lirong Chen: College of Economics and Management, Northeast Forestry University, Harbin 150040, China

Sustainability, 2020, vol. 12, issue 18, 1-20

Abstract: China, taking the concept of sustainable development as the premise, puts forward Intended Nationally Determined Contributions (INDC) to reduce the greenhouse gas emissions in response to climate change. In this context, with the purpose of seeking solutions to a carbon financial market pricing mechanism to build China’s carbon finance market actively and thus achieving the goal of sustainable development, this paper, based on the autoregressive integrated moving average (ARIMA) model, established a carbon price prediction model for the carbon financial market, and studied the relationship between Certified Emission Reduction (CER) futures prices and spot prices, as well as the relationship between European Union allowances (EUA) futures prices and CER futures prices in an empirical manner. In this paper, EUA and CER futures prices of the European Climate Exchange (ECX) and EUA and CER spot prices of the BlueNext Environmental Exchange were selected as research objects. Granger causality test, co-integration test, and ECM were used to form a progressive econometric analysis framework. The results show that firstly, the ARIMA model can effectively predict carbon futures prices; secondly, CER futures prices cannot guide spot price, and the futures pricing function does not play a role in this market; thirdly, EUA futures price can, in the short term, effectively guide the trend of CER futures prices, with the futures pricing function between the two markets. In the long run, however, the future pricing function of the two markets is not obvious. Therefore, great differences among maturity of the two markets, degree of policy influence, and market share lead to the failure of long-run futures pricing functions.

Keywords: carbon financial market; futures pricing; ARIMA model; price change relationship (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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