Tail dependence and risk spillover effects between China's carbon market and energy markets

Jianing Liu, Yuanyuan Man and Xiuliang Dong

International Review of Economics & Finance, 2023, vol. 84, issue C, 553-567

Abstract: This study measures the tail dependence and risk spillover effects between China's carbon market and the coal, crude oil, and natural gas markets using the TVP-Copula-CoVaR method. Our results indicate that China has a high-risk carbon market as it is more vulnerable to extreme external shocks or seasonal fluctuations than the energy markets. Additionally, the upside and downside tail dependence are asymmetric, indicating that investing in carbon markets diminishes the risk of investing in energy commodities. The spillover of downside risks between these markets is noticeably greater than that of upside risks, implying that the carbon and energy markets are all the more susceptible to adverse news and sensitive to extreme declines. The results reveal implications regarding risk assessment and management for investors, portfolio managers, and policymakers at the initial stage of a new carbon market.

Keywords: Carbon market; Energy markets; China; Tail dependence; Risk spillover effects (search for similar items in EconPapers)
JEL-codes: C32 G11 Q43 Q56 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:84:y:2023:i:c:p:553-567

DOI: 10.1016/j.iref.2022.11.013

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