Multifractal Detrended Cross-Correlation Analysis of Electricity and Carbon Markets in China

Shaohui Zou and Tian Zhang

Mathematical Problems in Engineering, 2019, vol. 2019, 1-13

Abstract:

With the development of carbon market, the complex dynamic relationship between electricity and carbon market has become the focus of energy research area. In this paper, we applied a new developed multifractal detrended cross-correlation analysis method to investigate the cross-correlation and multifractality between electricity and carbon markets. We analyze the daily return of electricity and carbon prices over a period of 6 years to do the research. The results show that, firstly, we find that there is a strong negative correlation between domestic carbon price and electricity price and a significant cross-correlation between the return series of electricity and carbon markets. Secondly, through multifractal detrended fluctuation analysis, it is proven that there are obvious multifractal characteristics in the return series of electricity and carbon markets, and the results of traditional linear analysis are unreliable. We also find that, based on multifractal detrended cross-correlation analysis, the law cross-correlation between electricity and carbon markets exists significantly. The long-range correlation of small fluctuations and large fluctuations and the fat tail distribution of return series are the reasons for the formation of multifractality.

Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:hin:jnlmpe:9350940

DOI: 10.1155/2019/9350940

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