Multifractal detrended cross-correlation analysis of carbon emission allowance and stock returns
Jianfeng Li and
Physica A: Statistical Mechanics and its Applications, 2018, vol. 509, issue C, 551-566
The nonlinear relationship between carbon emission allowance and stock markets has attracted special attention from economists around the world. This paper uses the technique of multifractal detrended cross-correlation analysis (MF-DCCA) to investigate the cross-correlations between carbon emission allowance and stock series as well as their dynamics for European and Chinese markets, respectively. The results show that the cross-correlations between carbon and stock series are significantly multifractal in European and Chinese markets. The cross-correlations of small fluctuations are persistent while those of large fluctuations are anti-persistent. Moreover, the degree and width of multifractality is found to be stronger in China than in Europe. We confirm that the multifractality of cross-correlations could be attributed to both the persistence of fluctuations of carbon emission allowance and stock markets and fat-tail distributions of the time series. By employing rolling estimate of MF-DCCA, we find that the scaling exponent varies over time and across fluctuations in European and Chinese markets. In particular, the Hurst exponent fluctuates around 0.5 in recent years.
Keywords: Carbon emission allowance; Stock markets; Multifractal detrended cross-correlation analysis (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:509:y:2018:i:c:p:551-566
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