Volatility spillover across Chinese carbon markets: Evidence from quantile connectedness method

Zheng-Zheng Li, Yameng Li, Chia-Yun Huang and Adelina Dumitrescu Peculea

Energy Economics, 2023, vol. 119, issue C

Abstract: The paper investigates the volatility spillover across China's carbon emission trading (CET) markets using the connectedness method based on the quantile VAR framework. The non-linear result shows strong volatility spillover effects in upper quantiles, resulting from major economic and political events. This is in accordance with the risk contagion hypothesis that volatility of carbon price returns is affected by the shocks of economic fundamentals and spills over to other pilots. Guangdong and Shanghai are the most significant contributors to volatility transmission because of their high liquidity and active markets. Hubei CET pilot has shifted from transmitter to receiver since the COVID-19 pandemic. Regarding the pairwise directional connectedness, geographical location and similar market attribute also matter in volatility transmission. This provides implications for policymakers and investors to attach importance to risk management given the quantile-based method rather than the average shocks.

Keywords: Carbon emission trading pilot; Volatility spillover; Quantile VAR; Risk contagion (search for similar items in EconPapers)
JEL-codes: C31 O44 Q56 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:119:y:2023:i:c:s0140988323000403

DOI: 10.1016/j.eneco.2023.106542

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