Quantile connectedness between energy, metal, and carbon markets

Jinyu Chen, Zhipeng Liang, Qian Ding and Zhenhua Liu

International Review of Financial Analysis, 2022, vol. 83, issue C

Abstract: This study employs a quantile connectedness approach to examine the dynamic linkages and tail risk connectedness between energy, metal, and carbon markets. Results show that the connectedness between energy, metal, and carbon markets is about 51% at the mean or median and 87% under extreme conditions. This means that the spillover effects of the two tails are much stronger than those under the conditional mean and normal markets, and the spillover effect between markets is heterogeneous under different market conditions. The connectedness between energy, metal, and carbon markets is time-varying, and the volatility is relatively small under extreme positive and negative conditions. Notably, the dynamic connectedness of energy, metal, and carbon markets is different in extreme upward and downward markets, which reflects the asymmetry and tail dependence of spillover effects between markets and indicates that spillover effects are different between the periods of upward and downward markets. In addition, the results of portfolio strategy show that holding short positions in the carbon market is an effective investment choice.

Keywords: Extreme spillovers; Tail risk; Carbon market; Hedging; Quantile regression (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:83:y:2022:i:c:s1057521922002381

DOI: 10.1016/j.irfa.2022.102282

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