IDEAS home Printed from https://ideas.repec.org/a/eee/jrpoli/v83y2023ics0301420723003148.html
   My bibliography  Save this article

Dependence structures among geopolitical risks, energy prices, and carbon emissions prices

Author

Listed:
  • Lau, Chi Keung
  • Soliman, Alaa M.
  • Albasu, Joseph
  • Gozgor, Giray

Abstract

This paper examines the short-, medium-, and long-run dependence structures for all distribution quantiles among carbon emissions prices, crude oil prices, natural gas prices, and geopolitical risks in Brazil, China, India, Russia, and South Africa from January 2003 to September 2019. The paper utilises the volatility spillover approach of Diebold-Yilmaz to identify the dependence structure among crude oil prices, natural gas prices, carbon emissions prices, and geopolitical risks within the variational mode decomposition-based copula method. It is observed that dependence structure across geopolitical risks and oil prices is time and frequency varying. It is also found that the dependence structure across geopolitical risks and oil prices is positive and valid at different periods and quantiles. The evidence has policy implications for hedging and portfolio risk diversification strategies and policymakers.

Suggested Citation

  • Lau, Chi Keung & Soliman, Alaa M. & Albasu, Joseph & Gozgor, Giray, 2023. "Dependence structures among geopolitical risks, energy prices, and carbon emissions prices," Resources Policy, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:jrpoli:v:83:y:2023:i:c:s0301420723003148
    DOI: 10.1016/j.resourpol.2023.103603
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301420723003148
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.resourpol.2023.103603?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Diebold, Francis X. & Yılmaz, Kamil, 2014. "On the network topology of variance decompositions: Measuring the connectedness of financial firms," Journal of Econometrics, Elsevier, vol. 182(1), pages 119-134.
    2. Antonakakis, Nikolaos & Gupta, Rangan & Kollias, Christos & Papadamou, Stephanos, 2017. "Geopolitical risks and the oil-stock nexus over 1899–2016," Finance Research Letters, Elsevier, vol. 23(C), pages 165-173.
    3. Hammoudeh, Shawkat & Nguyen, Duc Khuong & Sousa, Ricardo M., 2014. "Energy prices and CO2 emission allowance prices: A quantile regression approach," Energy Policy, Elsevier, vol. 70(C), pages 201-206.
    4. Dario Caldara & Matteo Iacoviello, 2022. "Measuring Geopolitical Risk," American Economic Review, American Economic Association, vol. 112(4), pages 1194-1225, April.
    5. Rickels, Wilfried & Duscha, Vicki & Keller, Andreas & Peterson, Sonja, 2007. "The determinants of allowance prices in the European emissions trading scheme: Can we expect an efficient allowance market 2008?," Kiel Working Papers 1387, Kiel Institute for the World Economy (IfW Kiel).
    6. Chia-Lin Chang & Michael McAleer & Guangdong Zuo, 2017. "Volatility Spillovers and Causality of Carbon Emissions, Oil and Coal Spot and Futures for the EU and USA," Sustainability, MDPI, vol. 9(10), pages 1-22, October.
    7. Hintermann, Beat, 2010. "Allowance price drivers in the first phase of the EU ETS," Journal of Environmental Economics and Management, Elsevier, vol. 59(1), pages 43-56, January.
    8. Kumar, Satish & Khalfaoui, Rabeh & Tiwari, Aviral Kumar, 2021. "Does geopolitical risk improve the directional predictability from oil to stock returns? Evidence from oil-exporting and oil-importing countries," Resources Policy, Elsevier, vol. 74(C).
    9. Francis X. Diebold & Kamil Yilmaz, 2009. "Measuring Financial Asset Return and Volatility Spillovers, with Application to Global Equity Markets," Economic Journal, Royal Economic Society, vol. 119(534), pages 158-171, January.
    10. Ren, Xiaohang & Li, Yiying & Qi, Yinshu & Duan, Kun, 2022. "Asymmetric effects of decomposed oil-price shocks on the EU carbon market dynamics," Energy, Elsevier, vol. 254(PB).
    11. Yu, Lean & Li, Jingjing & Tang, Ling & Wang, Shuai, 2015. "Linear and nonlinear Granger causality investigation between carbon market and crude oil market: A multi-scale approach," Energy Economics, Elsevier, vol. 51(C), pages 300-311.
    12. Gozgor, Giray & Tiwari, Aviral Kumar & Khraief, Naceur & Shahbaz, Muhammad, 2019. "Dependence structure between business cycles and CO2 emissions in the U.S.: Evidence from the time-varying Markov-Switching Copula models," Energy, Elsevier, vol. 188(C).
    13. Conrad, Christian & Rittler, Daniel & Rotfuß, Waldemar, 2012. "Modeling and explaining the dynamics of European Union Allowance prices at high-frequency," Energy Economics, Elsevier, vol. 34(1), pages 316-326.
    14. Ren, Xiaohang & Li, Jingyao & He, Feng & Lucey, Brian, 2023. "Impact of climate policy uncertainty on traditional energy and green markets: Evidence from time-varying granger tests," Renewable and Sustainable Energy Reviews, Elsevier, vol. 173(C).
    15. Ren, Xiaohang & Zhang, Xiao & Yan, Cheng & Gozgor, Giray, 2022. "Climate policy uncertainty and firm-level total factor productivity: Evidence from China," Energy Economics, Elsevier, vol. 113(C).
    16. Bertrand, Vincent, 2014. "Carbon and energy prices under uncertainty: A theoretical analysis of fuel switching with heterogenous power plants," Resource and Energy Economics, Elsevier, vol. 38(C), pages 198-220.
    17. repec:dau:papers:123456789/4222 is not listed on IDEAS
    18. Semeyutin, Artur & Gozgor, Giray & Lau, Chi Keung Marco & Xu, Bing, 2021. "Effects of idiosyncratic jumps and co-jumps on oil, gold, and copper markets," Energy Economics, Elsevier, vol. 104(C).
    19. Jozef Baruník & Tomáš Křehlík, 2018. "Measuring the Frequency Dynamics of Financial Connectedness and Systemic Risk," Journal of Financial Econometrics, Oxford University Press, vol. 16(2), pages 271-296.
    20. Lutz, Benjamin Johannes & Pigorsch, Uta & Rotfuß, Waldemar, 2013. "Nonlinearity in cap-and-trade systems: The EUA price and its fundamentals," Energy Economics, Elsevier, vol. 40(C), pages 222-232.
    21. Reboredo, Juan C., 2014. "Volatility spillovers between the oil market and the European Union carbon emission market," Economic Modelling, Elsevier, vol. 36(C), pages 229-234.
    22. Kim, Hyun Seok & Koo, Won W., 2010. "Factors affecting the carbon allowance market in the US," Energy Policy, Elsevier, vol. 38(4), pages 1879-1884, April.
    23. Tomohiro Ando & Matthew Greenwood-Nimmo & Yongcheol Shin, 2022. "Quantile Connectedness: Modeling Tail Behavior in the Topology of Financial Networks," Management Science, INFORMS, vol. 68(4), pages 2401-2431, April.
    24. Wang, Yihan & Bouri, Elie & Fareed, Zeeshan & Dai, Yuhui, 2022. "Geopolitical risk and the systemic risk in the commodity markets under the war in Ukraine," Finance Research Letters, Elsevier, vol. 49(C).
    25. Monge, Manuel & Cristóbal, Enrique, 2021. "Terrorism and the behavior of oil production and prices in OPEC," Resources Policy, Elsevier, vol. 74(C).
    26. Diebold, Francis X. & Yilmaz, Kamil, 2012. "Better to give than to receive: Predictive directional measurement of volatility spillovers," International Journal of Forecasting, Elsevier, vol. 28(1), pages 57-66.
    27. Alqahtani, Abdullah & Bouri, Elie & Vo, Xuan Vinh, 2020. "Predictability of GCC stock returns: The role of geopolitical risk and crude oil returns," Economic Analysis and Policy, Elsevier, vol. 68(C), pages 239-249.
    28. Li, Wei & Sun, Wen & Li, Guomin & Jin, Baihui & Wu, Wen & Cui, Pengfei & Zhao, Guohao, 2018. "Transmission mechanism between energy prices and carbon emissions using geographically weighted regression," Energy Policy, Elsevier, vol. 115(C), pages 434-442.
    29. Soliman, Alaa M. & Nasir, Muhammad Ali, 2019. "Association between the energy and emission prices: An analysis of EU emission trading system," Resources Policy, Elsevier, vol. 61(C), pages 369-374.
    30. Li, Yingli & Huang, Jianbai & Gao, Wang & Zhang, Hongwei, 2021. "Analyzing the time-frequency connectedness among oil, gold prices and BRICS geopolitical risks," Resources Policy, Elsevier, vol. 73(C).
    31. Nikolaos Antonakakis & Ioannis Chatziantoniou & David Gabauer, 2020. "Refined Measures of Dynamic Connectedness based on Time-Varying Parameter Vector Autoregressions," JRFM, MDPI, vol. 13(4), pages 1-23, April.
    32. Maria Mansanet-Bataller & Angel Pardo & Enric Valor, 2007. "CO2 Prices, Energy and Weather," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 73-92.
    33. Fang, Jianchun & Lau, Chi Keung Marco & Lu, Zhou & Wu, Wanshan, 2018. "Estimating Peak uranium production in China – Based on a Stella model," Energy Policy, Elsevier, vol. 120(C), pages 250-258.
    34. Li, Yurog & Cong, Zhenglong & Xie, Yufan & Wang, Yan & Wang, Hongmei, 2022. "The relationship between green finance, economic factors, geopolitical risk and natural resources commodity prices: Evidence from five most natural resources holding countries," Resources Policy, Elsevier, vol. 78(C).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Soliman, Alaa M. & Lau, Chi Keung & Cai, Yifei & Sarker, Provash Kumer & Dastgir, Shabbir, 2023. "Asymmetric Effects of Energy Inflation, Agri-inflation and CPI on Agricultural Output: Evidence from NARDL and SVAR Models for the UK," Energy Economics, Elsevier, vol. 126(C).
    2. Lin, Tsung-Xian & Gozgor, Giray & Rather, Kashif Nesar & Mahalik, Mantu Kumar & Lau, Chi Keung Marco, 2024. "How do natural resource rents and productive capacity affect carbon emissions? Evidence from developed and developing countries," Resources Policy, Elsevier, vol. 93(C).
    3. Naeem, Muhammad Abubakr & Arfaoui, Nadia, 2023. "Exploring downside risk dependence across energy markets: Electricity, conventional energy, carbon, and clean energy during episodes of market crises," Energy Economics, Elsevier, vol. 127(PB).
    4. Ren, Xiaohang & Yang, Wanping & Jin, Yi, 2024. "Geopolitical risk and renewable energy consumption: Evidence from a spatial convergence perspective," Energy Economics, Elsevier, vol. 131(C).
    5. Lei, Heng & Xue, Minggao & Ye, Jing, 2024. "The nexus between ReFi, carbon, fossil energy, and clean energy assets: Quantile time–frequency connectedness and portfolio implications," Energy Economics, Elsevier, vol. 132(C).
    6. Chen, Yanhui & Zhou, Xiaoyu & Chen, Shun & Mi, Jackson Jinhong, 2024. "LNG freight rate and LNG price, carbon price, geopolitical risk: A dynamic connectedness analysis," Energy, Elsevier, vol. 302(C).
    7. Ding, Shusheng & Wang, Kaihao & Cui, Tianxiang & Du, Min, 2023. "The time-varying impact of geopolitical risk on natural resource prices: The post-COVID era evidence," Resources Policy, Elsevier, vol. 86(PB).
    8. Zhang, Xiaojing & Chang, Hsu-Ling & Su, Chi-Wei & Qin, Meng & Umar, Muhammad, 2024. "Exploring the dynamic interaction between geopolitical risks and lithium prices: A time-varying analysis," Resources Policy, Elsevier, vol. 90(C).
    9. Ding, Tao & Li, Hao & Tan, Ruipeng & Zhao, Xin, 2023. "How does geopolitical risk affect carbon emissions?: An empirical study from the perspective of mineral resources extraction in OECD countries," Resources Policy, Elsevier, vol. 85(PB).
    10. Wang, Jiqiang & Dai, Peng-Fei & Zhang, Xuewen, 2024. "Untangling the entanglement of US monetary policy uncertainty and European natural gas and carbon prices," Energy Economics, Elsevier, vol. 133(C).
    11. Halkos, George E. & Aslanidis, Panagiotis – Stavros C., 2023. "Sustainable energy development in an era of geopolitical multi-crisis. Applying productivity indices within institutional framework," Resources Policy, Elsevier, vol. 85(PB).
    12. Wang, Erhong & Padhan, Hemachandra & Pruseth, Sujit Kumar & Ma, Junwei, 2024. "Government efficiency, green technology, and ecological footprint: Strategic framework for natural resource management efficiency targets," Resources Policy, Elsevier, vol. 91(C).
    13. Qi, Shaozhou & Pang, Lidong & Qi, Tianbai & Zhang, Xiaoling & Pirtea, Marilen Gabriel, 2024. "The correlation between the green bond market and carbon trading markets under climate change: Evidence from China," Technological Forecasting and Social Change, Elsevier, vol. 203(C).
    14. Chen, Limei & Gozgor, Giray & Mahalik, Mantu Kumar & Pal, Shreya & Rather, Kashif Nesar, 2023. "How does geopolitical risk affect CO2 emissions? The role of natural resource rents," Resources Policy, Elsevier, vol. 87(PB).
    15. Zhang, Jiahao & Zhang, Yifeng & Wei, Yu & Wang, Zhuo, 2024. "Normal and extreme impact and connectedness between fossil energy futures markets and uncertainties: Does El Niño-Southern Oscillation matter?," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 188-215.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fang, Sheng & Lu, Xinsheng & Li, Jianfeng & Qu, Ling, 2018. "Multifractal detrended cross-correlation analysis of carbon emission allowance and stock returns," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 509(C), pages 551-566.
    2. Zhang, Yulian & Hamori, Shigeyuki, 2022. "A connectedness analysis among BRICS’s geopolitical risks and the US macroeconomy," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 182-203.
    3. Do, Hung Xuan & Nepal, Rabindra & Pham, Son Duy & Jamasb, Tooraj, 2024. "Electricity market crisis in Europe and cross border price effects: A quantile return connectedness analysis," Energy Economics, Elsevier, vol. 135(C).
    4. Shang, Jin & Hamori, Shigeyuki, 2024. "Quantile time-frequency connectedness analysis between crude oil, gold, financial markets, and macroeconomic indicators: Evidence from the US and EU," Energy Economics, Elsevier, vol. 132(C).
    5. Tan, Xue-Ping & Wang, Xin-Yu, 2017. "Dependence changes between the carbon price and its fundamentals: A quantile regression approach," Applied Energy, Elsevier, vol. 190(C), pages 306-325.
    6. Yang, Ming-Yuan & Chen, Zhanghangjian & Liang, Zongzheng & Li, Sai-Ping, 2023. "Dynamic and asymmetric connectedness in the global “Carbon-Energy-Stock” system under shocks from exogenous events," Journal of Commodity Markets, Elsevier, vol. 32(C).
    7. Adekoya, Oluwasegun B. & Oliyide, Johnson A. & Noman, Ambreen, 2021. "The volatility connectedness of the EU carbon market with commodity and financial markets in time- and frequency-domain: The role of the U.S. economic policy uncertainty," Resources Policy, Elsevier, vol. 74(C).
    8. Tan, Xueping & Sirichand, Kavita & Vivian, Andrew & Wang, Xinyu, 2020. "How connected is the carbon market to energy and financial markets? A systematic analysis of spillovers and dynamics," Energy Economics, Elsevier, vol. 90(C).
    9. Duan, Kun & Ren, Xiaohang & Shi, Yukun & Mishra, Tapas & Yan, Cheng, 2021. "The marginal impacts of energy prices on carbon price variations: Evidence from a quantile-on-quantile approach," Energy Economics, Elsevier, vol. 95(C).
    10. Chun, Dohyun & Cho, Hoon & Kim, Jihun, 2022. "The relationship between carbon-intensive fuel and renewable energy stock prices under the emissions trading system," Energy Economics, Elsevier, vol. 114(C).
    11. Chen, Yanhui & Zhou, Xiaoyu & Chen, Shun & Mi, Jackson Jinhong, 2024. "LNG freight rate and LNG price, carbon price, geopolitical risk: A dynamic connectedness analysis," Energy, Elsevier, vol. 302(C).
    12. Evrim Mandaci, Pınar & Azimli, Asil & Mandaci, Nazif, 2023. "The impact of geopolitical risks on connectedness among natural resource commodities: A quantile vector autoregressive approach," Resources Policy, Elsevier, vol. 85(PA).
    13. Dai, Xingyu & Xiao, Ling & Wang, Qunwei & Dhesi, Gurjeet, 2021. "Multiscale interplay of higher-order moments between the carbon and energy markets during Phase III of the EU ETS," Energy Policy, Elsevier, vol. 156(C).
    14. Lovcha, Yuliya & Perez-Laborda, Alejandro & Sikora, Iryna, 2022. "The determinants of CO2 prices in the EU emission trading system," Applied Energy, Elsevier, vol. 305(C).
    15. Lovcha, Yuliya & Perez-Laborda, Alejandro, 2020. "Dynamic frequency connectedness between oil and natural gas volatilities," Economic Modelling, Elsevier, vol. 84(C), pages 181-189.
    16. Yi Yao & Lixin Tian & Guangxi Cao, 2022. "The Information Spillover among the Carbon Market, Energy Market, and Stock Market: A Case Study of China’s Pilot Carbon Markets," Sustainability, MDPI, vol. 14(8), pages 1-18, April.
    17. Feng, Huiqun & Zhang, Jun & Guo, Na, 2023. "Time-varying linkages between energy and stock markets: Dynamic spillovers and driving factors," International Review of Financial Analysis, Elsevier, vol. 89(C).
    18. Fang Zhang & Zhengjun Zhang, 2020. "The tail dependence of the carbon markets: The implication of portfolio management," PLOS ONE, Public Library of Science, vol. 15(8), pages 1-17, August.
    19. Inglesi-Lotz, R. & Dogan, Eyup & Nel, J. & Tzeremes, Panayiotis, 2023. "Connectedness and spillovers in the innovation network of green transportation," Energy Policy, Elsevier, vol. 180(C).
    20. Al-Fayoumi, Nedal & Bouri, Elie & Abuzayed, Bana, 2023. "Decomposed oil price shocks and GCC stock market sector returns and volatility," Energy Economics, Elsevier, vol. 126(C).

    More about this item

    Keywords

    Geopolitical risks; Carbon emissions prices; Crude oil prices; Natural gas prices; Volatility spillover; Variational mode decomposition-based copula;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jrpoli:v:83:y:2023:i:c:s0301420723003148. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30467 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.