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Multidimensional risk spillovers among carbon, energy and nonferrous metals markets: Evidence from the quantile VAR network

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  • Zhou, Yuqin
  • Wu, Shan
  • Zhang, Zeyi

Abstract

Carbon market attracts much attention due to its unique statue of promoting the transformation and development of low-carbon economy. In this paper, we investigate the multidimensional risk spillover effects among carbon, energy and nonferrous metals markets, and also examine the portfolio diversification. The quantile VAR network framework and GARCHSK model are applied. We find that: (i)There are significant risk spillover effects among carbon, energy and nonferrous metal market with prominent dynamic characteristics, while the risk spillover under different dimensions shows apparent differences. (ii)According to the findings based on network structure features, the Coal market becomes the core market of carbon-energy-nonferrous system, and the position of carbon trading market is significantly weakened when the market is downturn. (iii) In their portfolios, the nonferrous metals assets are preferred over carbon and energy, investors should adjust the portfolio structure and hedge positions according to market conditions. These findings have important implications for investors to construct diversified portfolios and regulators to formulate risk regulation policies.

Suggested Citation

  • Zhou, Yuqin & Wu, Shan & Zhang, Zeyi, 2022. "Multidimensional risk spillovers among carbon, energy and nonferrous metals markets: Evidence from the quantile VAR network," Energy Economics, Elsevier, vol. 114(C).
    • Handle: RePEc:eee:eneeco:v:114:y:2022:i:c:s0140988322004480
    DOI: 10.1016/j.eneco.2022.106319
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    4. Liangzheng Wu & Yan Huang & Yimiao Gu, 2023. "Fragmented or Unified? The State of China’s Carbon Emission Trading Market," Energies, MDPI, vol. 16(5), pages 1-11, March.
    5. Yuqin Zhou & Shan Wu & Zhenhua Liu & Lavinia Rognone, 2023. "The asymmetric effects of climate risk on higher-moment connectedness among carbon, energy and metals markets," Nature Communications, Nature, vol. 14(1), pages 1-16, December.
    6. Ghosh, Bikramaditya & Pham, Linh & Teplova, Tamara & Umar, Zaghum, 2023. "COVID-19 and the quantile connectedness between energy and metal markets," Energy Economics, Elsevier, vol. 117(C).
    7. Dong, Qingli & Zhao, Yanzhi & Ma, Xiaojun & Zhou, Yanan, 2024. "Risk spillover between carbon markets and stock markets from a progressive perspective: Measurements, spillover networks, and driving factors," Energy Economics, Elsevier, vol. 129(C).
    8. Yuexu Zhao & Weiqi Xu, 2023. "Measurement of risk spillover effect based on EV-Copula method," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-10, December.
    9. Wang, Lu & Guan, Li & Ding, Qian & Zhang, Hongwei, 2023. "Asymmetric impact of COVID-19 news on the connectedness of the green energy, dirty energy, and non-ferrous metal markets," Energy Economics, Elsevier, vol. 126(C).
    10. Hoque, Mohammad Enamul & Soo-Wah, Low & Billah, Mabruk, 2023. "Time-frequency connectedness and spillover among carbon, climate, and energy futures: Determinants and portfolio risk management implications," Energy Economics, Elsevier, vol. 127(PB).
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    12. Xing, Xiaoyun & Chen, Ying & Wang, Xiuya & Li, Boyao & Deng, Jing, 2023. "The impact of national carbon market establishment on risk transmission among carbon and energy markets in China: A systemic importance analysis," Finance Research Letters, Elsevier, vol. 57(C).

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    Keywords

    Carbon market; GARCHSK model; Quantile VAR network;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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