Global Transmission of Returns among Financial, Traditional Energy, Renewable Energy and Carbon Markets: New Evidence

Yang Liu, Xueqing Yang and Mei Wang
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Yang Liu: Chair of Behavioral Finance, WHU-Otto Beisheim School of Management, Burgplatz 2, 56179 Vallendar, Germany
Xueqing Yang: Institute of Remote Sensing and Digital Agriculture, Sichuan Academy of Agricultural Sciences, Jingjusi Road 20, Chengdu 610066, China
Mei Wang: Chair of Behavioral Finance, WHU-Otto Beisheim School of Management, Burgplatz 2, 56179 Vallendar, Germany

Energies, 2021, vol. 14, issue 21, 1-32

Abstract: Connections to world markets facilitate local markets developments to support more efficient capital allocation and greater investment and growth opportunities. Under the framework of cross-market rebalancing theory, in this study, we aim to systematically examine the market connections among world financial, energy, renewable energy and European carbon markets by measuring the return spillovers from 2008 to 2021. We find that the renewable energy market is more closely connected to the world financial and energy markets in the sense of the return transmission, while the carbon market is less connected to them. However, due to improved market regulations and determinations related to fighting climate change, the connections between the carbon market and other markets have gradually intensified. Plotting the return spillover indexes, we observe that strong return spillovers from the renewable energy market to other markets occurred when large investment plans were announced. Regarding the carbon market, regulation changes introduced by the EU Commission to improve and stabilize market environment induced intensified return transmission from carbon market to other markets. Another interesting finding is that the highly intensified return transmission among markets due to the COVID-19 crisis started to loosen when COVAX published the first interim distribution forecast on 3 February 2021.

Keywords: renewable energy market; European carbon allowance; capital market; energy market; return transmission; market connection (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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