The volatility spillover effect of the European Union (EU) carbon financial market

Shihong Zeng*, Jingmin Jia, Bin Su* (Corresponding Author), Chunxia Jiang* (Corresponding Author), Guowang Zeng

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

6 Citations (Scopus)

Abstract

This paper modifies the BEKK-GARCH model based on the empirical results of the VAR model to analyze the dynamic volatility spillover effect between the European Union allowance (EUA) and certified emissions reduction (CER) markets during the second and third phases of the European Union Emission Trading System (EU ETS). The empirical results show that (1) an asymmetric volatility spillover effect exists between the EUA and CER markets and that the EUA market has a more significant volatility spillover effect on the CER market, and (2) the volatility spillover effect between the EUA and CER becomes weaker in phase III since the European Commission has limited the substitution of CER for EUA more strictly and the global carbon reduction requirements have become less demanding. Our study can help investors and managers of carbon market to have a more comprehensive understanding of the information and risk transmission mechanism between the EUA and CER markets, thus, providing them with a basis to make investment decisions and formulate policies.
Original languageEnglish
Article number124394
Number of pages15
JournalJournal of Cleaner Production
Volume282
Early online date29 Sep 2020
DOIs
Publication statusPublished - 1 Feb 2021

Keywords

  • Carbon financial market
  • Volatility spillover effect
  • VAR modelling
  • BEKK-GARCH model
  • VAR model

Fingerprint

Dive into the research topics of 'The volatility spillover effect of the European Union (EU) carbon financial market'. Together they form a unique fingerprint.

Cite this