Modeling the Risk of Extreme Value Dependence in Chinese Regional Carbon Emission Markets

Hong Qiu, Genhua Hu, Yuhong Yang, Jeffrey Zhang and Ting Zhang
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Hong Qiu: School of Management, Xihua University, Chengdu 610039, China
Genhua Hu: Anhui Institute for Innovation-Driven Development, School of Business, Anhui University of Technology, Maanshan 243032, China
Yuhong Yang: School of Business Administration, Shanghai Lixin University of Accounting and Finance, Shanghai 201620, China
Jeffrey Zhang: Centerville High School, Centerville, OH 45459, USA
Ting Zhang: Department of Economics and Finance, School of Business Administration, University of Dayton, Dayton, OH 45469, USA

Sustainability, 2020, vol. 12, issue 19, 1-15

Abstract: In this study, we analyze the risk of extreme value dependence in Chinese regional carbon emission markets. After filtering the daily return data of six carbon markets in China using a generalized autoregressive conditional heteroscedasticity (GARCH) model, we obtain the standardized residual series. Next, the dependence structures in the markets are captured by the Copula function and the Extreme Value theory (EVT). We report high peaks, heavy tails and fluctuation aggregation in the logarithm return series of the markets, as well as significant dependent structures. There are significant extreme value risks in Chinese regional carbon markets, but the risks can be mitigated through appropriate portfolio diversification.

Keywords: carbon emission markets; GARCH; extreme value theory; copula function; value-at-risk (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 (1)

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