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The influence of market liquidity on the efficiency of China's pilot carbon markets

Author

Listed:
  • Wang, Qian
  • Wu, Sitong
  • Huang, Peng
  • Hueng, C. James

Abstract

China's carbon pilot markets are immature and face serious illiquidity problems. We provide a comprehensive assessment of the influence of liquidity on the efficiency of these markets. Based on the characteristics of immature markets, we use thin trading, trading volume, and market depth to measure liquidity. Market efficiency is defined as whether carbon prices follow a random walk, tested by the automatic variance ratio test with wild bootstrapping. A logit model is used to examine how liquidity measures, along with control variables, affect market efficiency. We show that regardless of the measures, liquidity has a significantly positive impact on efficiency.

Suggested Citation

  • Wang, Qian & Wu, Sitong & Huang, Peng & Hueng, C. James, 2025. "The influence of market liquidity on the efficiency of China's pilot carbon markets," Finance Research Letters, Elsevier, vol. 72(C).
    • Handle: RePEc:eee:finlet:v:72:y:2025:i:c:s1544612324015897
    DOI: 10.1016/j.frl.2024.106560
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    More about this item

    Keywords

    Market efficiency; Market liquidity; China's carbon pilot markets;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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