Asymmetric time-varying dependence and variable structure dependence measurement and analysis of EUA and CER

Xing Yang, Yi-ting Ye, Jia-wen Li and Jun-long Mi

International Journal of Low-Carbon Technologies, 2023, vol. 18, 609-621

Abstract: This paper analyzed the time-varying dependence and structural dependence between EU allowances (EUAs) and certified emission reductions (CERs) by using price fluctuation data from 2008 to 2021 on EU ETS. It was found that (1) there was a strong nonlinear spillover relationship between EUAs and CERs. From 14 March 2008 to 16 March 2012, the time-varying dependence values of EUAs and CERs were mostly between 0.6 and 1 and the mean coefficient of dependence was 0.86, showing a strong interdependence. From 17 March 2012 to 2 January 2017, the correlation between them was mostly below 0.6 and the mean coefficient of dependence fell to 0.25. This indicates that the dependency between EUA futures and CER futures was very low at this stage. However, in general, the mean value of dependence was above 0.55, that is, there was a dependency between them. (2) From 14 March 2008 to 2 January 2017, there were 12 structural mutation points in EUA and CER yield sequences. After four mutation points, the dependence coefficient increased and the structural dependence enhanced. Meanwhile, after eight mutation points, the dependence coefficient decreased and the structural dependence weakened. The overall level remained above 0.6, showing the existence of structural dependence. (3) Abrupt changes in EUA and CER prices were closely related to the promulgation of major policies and unpredictable emergencies. The former caused carbon prices to fluctuate slightly. When the period of change was short and the recovery was rapid, it caused sharp fluctuations in carbon prices. When the duration of change was long, and the recovery was slow, it yielded impacts that extend far beyond the publication of important information.

Keywords: variable structure dependence; time-varying dependence; price fluctuation of EUAs and CERs (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:oup:ijlctc:v:18:y:2023:i::p:609-621.

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