The influence of market liquidity on the efficiency of China's pilot carbon markets

Qian Wang, Sitong Wu, Peng Huang and C. Hueng

Finance Research Letters, 2025, vol. 72, issue C

Abstract: China's carbon pilot markets are immature and face serious illiquidity problems. We provide a comprehensive assessment of the influence of liquidity on the efficiency of these markets. Based on the characteristics of immature markets, we use thin trading, trading volume, and market depth to measure liquidity. Market efficiency is defined as whether carbon prices follow a random walk, tested by the automatic variance ratio test with wild bootstrapping. A logit model is used to examine how liquidity measures, along with control variables, affect market efficiency. We show that regardless of the measures, liquidity has a significantly positive impact on efficiency.

Keywords: Market efficiency; Market liquidity; China's carbon pilot markets (search for similar items in EconPapers)
JEL-codes: G14 Q02 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:72:y:2025:i:c:s1544612324015897

DOI: 10.1016/j.frl.2024.106560

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