Climate change economics and the determinants of carbon emissions’ futures returns: A regime-driven ARDL model

Giorgos Kotsompolis, Konstantinos Konstantakis, Panos Xidonas, Panayotis Michaelides and Dimitrios Thomakos

Finance Research Letters, 2023, vol. 58, issue PC

Abstract: This paper employs a Markov Switching Regime (MSR) ARDL model to investigate the determinants of future carbon emission returns, considering distinct regimes of mean and volatility. Utilizing daily data from January 16, 2009, to July 1, 2021, we analyze carbon emissions allowances and returns of major energy commodities. We identify two persistent regimes: high returns with low volatility and low returns with increased volatility. Fluctuations in oil prices significantly influence carbon emissions prices during specific states. Impulse Response Functions (IRFs) reveal short-term fluctuations in carbon emissions returns due to shocks in energy commodity returns, with varying effects between the regimes.

Keywords: Markov switching regime; ARDL; Carbon emissions; Climate policy (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:58:y:2023:i:pc:s1544612323008577

DOI: 10.1016/j.frl.2023.104485

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