Multifractality and market efficiency of carbon emission trading market: Analysis using the multifractal detrended fluctuation technique

Xinghua Fan, Xiangxiang Lv, Jiuli Yin, Lixin Tian and Jiaochen Liang

Applied Energy, 2019, vol. 251, issue C, -

Abstract: An efficient carbon market is important for mitigating carbon emissions and many other energy issues. In this study we investigate the multifractality and efficiency of carbon market using Multifractal Detrended Fluctuation Analysis, and the data are based on the carbon price returns of seven pilots in the carbon market of China. First, we find the price return series is multifractal for both the short term and the long term. Asymmetric distributions of carbon prices and the general Hurst exponents in the return series are detected, which suggest a lack of efficiency in the pilot markets under study. Then, we measure the efficiencies of these carbon market pilots using an indicator that we develop based on the generalized Hurst exponents, and the results suggest ubiquitous inefficiencies among them. But it is also found that the efficiencies of most of the pilots have been improving over time. The ranking of the pilot markets’ efficiencies depends on the time window under study. For time scales shorter than a month, Chongqing pilot generally ranks the highest and Hubei pilot the lowest. Beijing pilot performs the best while Tianjin the worst when the time scale is longer. Lastly, regression results show that the carbon market pilot’s inefficiency value is positively correlated with market activity in the short run while negatively in the long run. Based on the empirical results, effect of the inefficiency on low-carbon development and the policy implications are discussed.

Keywords: Carbon market; Multifractal Detrended Fluctuation Analysis; General Hurst exponent; Multifractality; Market efficiency (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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DOI: 10.1016/j.apenergy.2019.113333

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