How do carbon pricing spillover effects impact green asset price volatility? An empirical study based on the TVP-VAR-DY model

Zheng He, Zhengkai Liu, Congzhi Zhang and Yuanjun Zhao

Economic Analysis and Policy, 2025, vol. 85, issue C, 2162-2179

Abstract: This study examines the dynamic interrelationships between the carbon, green finance, and traditional energy markets in China, focusing on their spillover effects and time-varying characteristics. Using data from 2021 to 2024, this study employs the TVP-VAR-DY (Time-Varying Parameter Vector Autoregression with Diebold-Yilmaz Spillover Index) model to analyze these intermarket dynamics. The study's key findings are as follows. The carbon market exerts notable spillover effects on the green bond market, but remains primarily a “risk taker” with net spillover effects less than zero. Significant systemic risk spillovers occur during key events, such as the launch of the national carbon market in 2021 and spikes in coal and crude oil prices, highlighting the amplifying effects of specific markets conditions. Traditional energy markets, especially coal and crude oil, are dominant “risk transmitters,” while the carbon market and the green finance market, especially the green bond market, act as “risk receivers,” absorbing risks from other sectors. The impact of the carbon market diminishes over time owing to low liquidity and inefficient pricing mechanisms, highlighting the need for further development. These findings underscore the pivotal function of the carbon market in fostering sustainable development while concurrently identifying domains for policy and market enhancement to more efficaciously integrate carbon trading into China's overarching economic framework.

Keywords: Carbon price; Green finance; Green asset price; Spillover effect (search for similar items in EconPapers)
JEL-codes: O13 P18 Q50 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:85:y:2025:i:c:p:2162-2179

DOI: 10.1016/j.eap.2025.03.008

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