Time-frequency co-movements between climate uncertainty and carbon market returns: Evidence based on wavelet coherence analysis

Jin-Hui Cao, Chi Xie, Gang-Jin Wang, You Zhu and Jiatong Liu

Finance Research Letters, 2025, vol. 74, issue C

Abstract: We explore the co-movement between two climate-related uncertainty indices and five carbon market returns in China from a time-frequency perspective based on wavelet coherence analysis. The co-movements are fragmented and time-varying, exhibiting complex intercorrelations. Several occasions of high correlations between CU and the two market returns (Hubei and Shanghai) are observed in the medium- and long-term, while those between CPU and the three market returns (Shenzhen, Guangdong and Hubei) are mainly in the short- and medium-term. The Shenzhen and Beijing markets present a climate policy-oriented feature after 2018, as a consistently strong co-movement between CPU and them is revealed. In addition, we find that the increases in climate (policy) uncertainty tend to reduce carbon market returns, mainly showing a negative correlation.

Keywords: Climate uncertainty; Climate policy uncertainty; Carbon market return; Co-movement; Wavelet coherence (search for similar items in EconPapers)
JEL-codes: C58 F37 Q54 Q56 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:74:y:2025:i:c:s1544612325000431

DOI: 10.1016/j.frl.2025.106778

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