IDEAS home Printed from https://ideas.repec.org/a/eee/phsmap/v555y2020ics0378437120303691.html
   My bibliography  Save this article

Stylized facts of the carbon emission market in China

Author

Listed:
  • Yan, Kai
  • Zhang, Wei
  • Shen, Dehua

Abstract

This paper gives the first empirical analysis on the stylized facts of the returns of five carbon emission market in China. The results mainly show that: (1) there exist heavy tails in returns and weak autocorrelation in both raw and absolute returns; (2) returns show strong volatility clustering, leverage effect, but weak long-range dependent property; (3) returns and trading volume are power-law correlated. All these findings suggest that returns of carbon emission market display the similar stylized facts found in equity market.

Suggested Citation

  • Yan, Kai & Zhang, Wei & Shen, Dehua, 2020. "Stylized facts of the carbon emission market in China," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 555(C).
    • Handle: RePEc:eee:phsmap:v:555:y:2020:i:c:s0378437120303691
    DOI: 10.1016/j.physa.2020.124739
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378437120303691
    Download Restriction: Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000
    File URL: https://libkey.io/10.1016/j.physa.2020.124739?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. Chevallier, Julien, 2011. "Detecting instability in the volatility of carbon prices," Energy Economics, Elsevier, vol. 33(1), pages 99-110, January.
    2. Chen, Yihsu & Zhang, Duan & Takashima, Ryuta, 2019. "Carbon emission forensic in the energy sector: Is it worth the effort?," Energy Policy, Elsevier, vol. 128(C), pages 868-878.
    3. Oestreich, A. Marcel & Tsiakas, Ilias, 2015. "Carbon emissions and stock returns: Evidence from the EU Emissions Trading Scheme," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 294-308.
    4. Benz, Eva & Trück, Stefan, 2009. "Modeling the price dynamics of CO2 emission allowances," Energy Economics, Elsevier, vol. 31(1), pages 4-15, January.
    5. Charles, Amélie & Darné, Olivier & Fouilloux, Jessica, 2013. "Market efficiency in the European carbon markets," Energy Policy, Elsevier, vol. 60(C), pages 785-792.
    6. He, Ling-Yun & Chen, Shu-Peng, 2011. "A new approach to quantify power-law cross-correlation and its application to commodity markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(21), pages 3806-3814.
    7. George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
    8. Gene M. Grossman & Alan B. Krueger, 1995. "Economic Growth and the Environment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(2), pages 353-377.
    9. An, Haizhong & Gao, Xiangyun & Fang, Wei & Huang, Xuan & Ding, Yinghui, 2014. "The role of fluctuating modes of autocorrelation in crude oil prices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 393(C), pages 382-390.
    10. Alam, M. Shahid, 2006. "Economic Growth with Energy," MPRA Paper 1260, University Library of Munich, Germany.
    11. Roselyne Joyeux & George Milunovich, 2010. "Testing market efficiency in the EU carbon futures market," Applied Financial Economics, Taylor & Francis Journals, vol. 20(10), pages 803-809.
    12. Chia-Lin Chang & Te-Ke Mai & Michael Mcaleer, 2018. "Pricing Carbon Emissions In China," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 13(03), pages 1-37, September.
    13. Rickels Wilfried & Görlich Dennis & Peterson Sonja, 2015. "Explaining European Emission Allowance Price Dynamics: Evidence from Phase II," German Economic Review, De Gruyter, vol. 16(2), pages 181-202, May.
    14. Daskalakis, George, 2018. "Temporal restrictions on emissions trading and the implications for the carbon futures market: Lessons from the EU emissions trading scheme," Energy Policy, Elsevier, vol. 115(C), pages 88-91.
    15. Glosten, Lawrence R & Jagannathan, Ravi & Runkle, David E, 1993. "On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks," Journal of Finance, American Finance Association, vol. 48(5), pages 1779-1801, December.
    16. 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.
    17. Chevallier, Julien & Le Pen, Yannick & Sévi, Benoît, 2011. "Options introduction and volatility in the EU ETS," Resource and Energy Economics, Elsevier, vol. 33(4), pages 855-880.
    18. Ling-Yun He & Sheng Yang & Wen-Si Xie & Zhi-Hong Han, 2014. "Contemporaneous and Asymmetric Properties in the Price-Volume Relationships in China's Agricultural Futures Markets," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(1S), pages 148-166, January.
    19. Charles P. Jones & Mark D. Walker & Jack W. Wilson, 2004. "Analyzing Stock Market Volatility Using Extreme‐Day Measures," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 27(4), pages 585-601, December.
    20. Chang, Kuang-Liang, 2012. "Volatility regimes, asymmetric basis effects and forecasting performance: An empirical investigation of the WTI crude oil futures market," Energy Economics, Elsevier, vol. 34(1), pages 294-306.
    21. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    22. He, Jie & Richard, Patrick, 2010. "Environmental Kuznets curve for CO2 in Canada," Ecological Economics, Elsevier, vol. 69(5), pages 1083-1093, March.
    23. 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.
    24. Zeng, Shihong & Nan, Xin & Liu, Chao & Chen, Jiuying, 2017. "The response of the Beijing carbon emissions allowance price (BJC) to macroeconomic and energy price indices," Energy Policy, Elsevier, vol. 106(C), pages 111-121.
    25. repec:dau:papers:123456789/6793 is not listed on IDEAS
    26. Paolella, Marc S. & Taschini, Luca, 2008. "An econometric analysis of emission allowance prices," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2022-2032, October.
    27. Eugenia Sanin, María & Violante, Francesco & Mansanet-Bataller, María, 2015. "Understanding volatility dynamics in the EU-ETS market," Energy Policy, Elsevier, vol. 82(C), pages 321-331.
    28. Arouri, Mohamed El Hedi & Ben Youssef, Adel & M'henni, Hatem & Rault, Christophe, 2012. "Energy consumption, economic growth and CO2 emissions in Middle East and North African countries," Energy Policy, Elsevier, vol. 45(C), pages 342-349.
    29. Zhao, Xin-gang & Jiang, Gui-wu & Nie, Dan & Chen, Hao, 2016. "How to improve the market efficiency of carbon trading: A perspective of China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 59(C), pages 1229-1245.
    30. Tabak, Benjamin M. & Cajueiro, Daniel O., 2007. "Are the crude oil markets becoming weakly efficient over time? A test for time-varying long-range dependence in prices and volatility," Energy Economics, Elsevier, vol. 29(1), pages 28-36, January.
    31. Chkili, Walid & Hammoudeh, Shawkat & Nguyen, Duc Khuong, 2014. "Volatility forecasting and risk management for commodity markets in the presence of asymmetry and long memory," Energy Economics, Elsevier, vol. 41(C), pages 1-18.
    32. Chevallier, Julien, 2011. "Nonparametric modeling of carbon prices," Energy Economics, Elsevier, vol. 33(6), pages 1267-1282.
    33. repec:dau:papers:123456789/6791 is not listed on IDEAS
    34. Zhu, Bangzhu & Han, Dong & Wang, Ping & Wu, Zhanchi & Zhang, Tao & Wei, Yi-Ming, 2017. "Forecasting carbon price using empirical mode decomposition and evolutionary least squares support vector regression," Applied Energy, Elsevier, vol. 191(C), pages 521-530.
    35. repec:dau:papers:123456789/4222 is not listed on IDEAS
    36. Garman, Mark B & Klass, Michael J, 1980. "On the Estimation of Security Price Volatilities from Historical Data," The Journal of Business, University of Chicago Press, vol. 53(1), pages 67-78, January.
    37. Seifert, Jan & Uhrig-Homburg, Marliese & Wagner, Michael, 2008. "Dynamic behavior of CO2 spot prices," Journal of Environmental Economics and Management, Elsevier, vol. 56(2), pages 180-194, September.
    38. Springer, Urs, 2003. "The market for tradable GHG permits under the Kyoto Protocol: a survey of model studies," Energy Economics, Elsevier, vol. 25(5), pages 527-551, September.
    39. 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.
    40. Alvarez-Ramirez, Jose & Alvarez, Jesus & Rodriguez, Eduardo & Fernandez-Anaya, Guillermo, 2008. "Time-varying Hurst exponent for US stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(24), pages 6159-6169.
    41. Tang, Ling & Wu, Jiaqian & Yu, Lean & Bao, Qin, 2015. "Carbon emissions trading scheme exploration in China: A multi-agent-based model," Energy Policy, Elsevier, vol. 81(C), pages 152-169.
    42. Zhao, Xin & Han, Meng & Ding, Lili & Kang, Wanglin, 2018. "Usefulness of economic and energy data at different frequencies for carbon price forecasting in the EU ETS," Applied Energy, Elsevier, vol. 216(C), pages 132-141.
    43. Zhang, Yue-Jun & Wei, Yi-Ming, 2010. "An overview of current research on EU ETS: Evidence from its operating mechanism and economic effect," Applied Energy, Elsevier, vol. 87(6), pages 1804-1814, June.
    44. Wei Zhang & Pengfei Wang & Xiao Li & Dehua Shen, 2018. "Some stylized facts of the cryptocurrency market," Applied Economics, Taylor & Francis Journals, vol. 50(55), pages 5950-5965, November.
    45. Du, Xiaodong & Yu, Cindy L. & Hayes, Dermot J., 2011. "Speculation and volatility spillover in the crude oil and agricultural commodity markets: A Bayesian analysis," Energy Economics, Elsevier, vol. 33(3), pages 497-503, May.
    46. Dormady, Noah C., 2014. "Carbon auctions, energy markets & market power: An experimental analysis," Energy Economics, Elsevier, vol. 44(C), pages 468-482.
    47. Rittler, Daniel, 2012. "Price discovery and volatility spillovers in the European Union emissions trading scheme: A high-frequency analysis," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 774-785.
    48. Bai, Xuezheng & Russell, Jeffrey R. & Tiao, George C., 2003. "Kurtosis of GARCH and stochastic volatility models with non-normal innovations," Journal of Econometrics, Elsevier, vol. 114(2), pages 349-360, June.
    49. Yuan Tian & Alexandr Akimov & Eduardo Roca & Victor Wong, "undated". "2012-10 Does the Carbon Market Help or Hurt the Stock Price of Electricity Companies? Further Evidence from the European Context," Discussion Papers in Finance finance:201210, Griffith University, Department of Accounting, Finance and Economics.
    50. Zhang, Yue-Jun & Peng, Yu-Lu & Ma, Chao-Qun & Shen, Bo, 2017. "Can environmental innovation facilitate carbon emissions reduction? Evidence from China," Energy Policy, Elsevier, vol. 100(C), pages 18-28.
    51. María José Rodríguez & Esther Ruiz, 2012. "Revisiting Several Popular GARCH Models with Leverage Effect: Differences and Similarities," Journal of Financial Econometrics, Oxford University Press, vol. 10(4), pages 637-668, September.
    52. Tang, Bao-jun & Shen, Cheng & Gao, Chao, 2013. "The efficiency analysis of the European CO2 futures market," Applied Energy, Elsevier, vol. 112(C), pages 1544-1547.
    53. Oberndorfer, Ulrich, 2009. "EU Emission Allowances and the stock market: Evidence from the electricity industry," Ecological Economics, Elsevier, vol. 68(4), pages 1116-1126, February.
    54. Alberola, Emilie & Chevallier, Julien & Cheze, Benoi^t, 2008. "Price drivers and structural breaks in European carbon prices 2005-2007," Energy Policy, Elsevier, vol. 36(2), pages 787-797, February.
    55. Yinpeng Zhang & Zhixin Liu & Yingying Xu, 2018. "Carbon price volatility: The case of China," PLOS ONE, Public Library of Science, vol. 13(10), pages 1-15, October.
    56. R. Cont, 2001. "Empirical properties of asset returns: stylized facts and statistical issues," Quantitative Finance, Taylor & Francis Journals, vol. 1(2), pages 223-236.
    57. 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.
    58. Nasir, Muhammad & Ur Rehman, Faiz, 2011. "Environmental Kuznets Curve for carbon emissions in Pakistan: An empirical investigation," Energy Policy, Elsevier, vol. 39(3), pages 1857-1864, March.
    59. Kim, Jungmu & Park, Yuen Jung & Ryu, Doojin, 2017. "Stochastic volatility of the futures prices of emission allowances: A Bayesian approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 465(C), pages 714-724.
    60. Daskalakis, George & Psychoyios, Dimitris & Markellos, Raphael N., 2009. "Modeling CO2 emission allowance prices and derivatives: Evidence from the European trading scheme," Journal of Banking & Finance, Elsevier, vol. 33(7), pages 1230-1241, July.
    61. Chang-Jing Ji & Yu-Jie Hu & Bao-Jun Tang, 2018. "Research on carbon market price mechanism and influencing factors: a literature review," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 92(2), pages 761-782, June.
    62. repec:dau:papers:123456789/5110 is not listed on IDEAS
    63. Saboori, Behnaz & Sulaiman, Jamalludin & Mohd, Saidatulakmal, 2012. "Economic growth and CO2 emissions in Malaysia: A cointegration analysis of the Environmental Kuznets Curve," Energy Policy, Elsevier, vol. 51(C), pages 184-191.
    64. Segnon, Mawuli & Lux, Thomas & Gupta, Rangan, 2017. "Modeling and forecasting the volatility of carbon dioxide emission allowance prices: A review and comparison of modern volatility models," Renewable and Sustainable Energy Reviews, Elsevier, vol. 69(C), pages 692-704.
    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. Razzaq, Asif & Sharif, Arshian & An, Hui & Aloui, Chaker, 2022. "Testing the directional predictability between carbon trading and sectoral stocks in China: New insights using cross-quantilogram and rolling window causality approaches," Technological Forecasting and Social Change, Elsevier, vol. 182(C).
    2. Chen, Li & Wemhoff, Aaron P., 2021. "Predicting embodied carbon emissions from purchased electricity for United States counties," Applied Energy, Elsevier, vol. 292(C).
    3. Muhammad Awais Gulzar & Haroon Asghar & Jinsoo Hwang & Waseem Hassan, 2020. "China’s Pathway towards Solar Energy Utilization: Transition to a Low-Carbon Economy," IJERPH, MDPI, vol. 17(12), pages 1-11, June.
    4. Yongjie Zhang & Yue Li & Dehua Shen, 2022. "Investor Attention and the Carbon Emission Markets in China: A Nonparametric Wavelet-Based Causality Test," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 29(1), pages 123-137, March.

    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. Cretí, Anna & Joëts, Marc, 2017. "Multiple bubbles in the European Union Emission Trading Scheme," Energy Policy, Elsevier, vol. 107(C), pages 119-130.
    3. Friedrich, Marina & Mauer, Eva-Maria & Pahle, Michael & Tietjen, Oliver, 2020. "From fundamentals to financial assets: the evolution of understanding price formation in the EU ETS," EconStor Preprints 196150, ZBW - Leibniz Information Centre for Economics, revised 2020.
    4. Tan, Xueping & Sirichand, Kavita & Vivian, Andrew & Wang, Xinyu, 2022. "Forecasting European carbon returns using dimension reduction techniques: Commodity versus financial fundamentals," International Journal of Forecasting, Elsevier, vol. 38(3), pages 944-969.
    5. Federico Galán-Valdivieso & Elena Villar-Rubio & María-Dolores Huete-Morales, 2018. "The erratic behaviour of the EU ETS on the path towards consolidation and price stability," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 18(5), pages 689-706, October.
    6. Demiralay, Sercan & Gencer, Hatice Gaye & Bayraci, Selcuk, 2022. "Carbon credit futures as an emerging asset: Hedging, diversification and downside risks," Energy Economics, Elsevier, vol. 113(C).
    7. Nicolas Koch, 2014. "Dynamic linkages among carbon, energy and financial markets: a smooth transition approach," Applied Economics, Taylor & Francis Journals, vol. 46(7), pages 715-729, March.
    8. Panagiotis G. Papaioannou & George P. Papaioannou & Kostas Siettos & Akylas Stratigakos & Christos Dikaiakos, 2017. "Dynamic Conditional Correlation between Electricity and Stock markets during the Financial Crisis in Greece," Papers 1708.07063, arXiv.org.
    9. Gil-Alana, Luis A. & Gupta, Rangan & de Gracia, Fernando Perez, 2016. "Modeling persistence of carbon emission allowance prices," Renewable and Sustainable Energy Reviews, Elsevier, vol. 55(C), pages 221-226.
    10. Medina, Vicente & Pardo, Ángel & Pascual, Roberto, 2014. "The timeline of trading frictions in the European carbon market," Energy Economics, Elsevier, vol. 42(C), pages 378-394.
    11. Jia, Jun-Jun & Xu, Jin-Hua & Fan, Ying, 2016. "The impact of verified emissions announcements on the European Union emissions trading scheme: A bilaterally modified dummy variable modelling analysis," Applied Energy, Elsevier, vol. 173(C), pages 567-577.
    12. Segnon, Mawuli & Lux, Thomas & Gupta, Rangan, 2017. "Modeling and forecasting the volatility of carbon dioxide emission allowance prices: A review and comparison of modern volatility models," Renewable and Sustainable Energy Reviews, Elsevier, vol. 69(C), pages 692-704.
    13. Uddin, Gazi Salah & Hernandez, Jose Areola & Shahzad, Syed Jawad Hussain & Hedström, Axel, 2018. "Multivariate dependence and spillover effects across energy commodities and diversification potentials of carbon assets," Energy Economics, Elsevier, vol. 71(C), pages 35-46.
    14. 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.
    15. Yinpeng Zhang & Zhixin Liu & Yingying Xu, 2018. "Carbon price volatility: The case of China," PLOS ONE, Public Library of Science, vol. 13(10), pages 1-15, October.
    16. Byun, Suk Joon & Cho, Hangjun, 2013. "Forecasting carbon futures volatility using GARCH models with energy volatilities," Energy Economics, Elsevier, vol. 40(C), pages 207-221.
    17. Marc Gronwald & Janina Ketterer & Stefan Trück, 2011. "The Dependence Structure between Carbon Emission Allowances and Financial Markets - A Copula Analysis," CESifo Working Paper Series 3418, CESifo.
    18. Chang, Kai & Chen, Rongda & Chevallier, Julien, 2018. "Market fragmentation, liquidity measures and improvement perspectives from China's emissions trading scheme pilots," Energy Economics, Elsevier, vol. 75(C), pages 249-260.
    19. Cong, Ren & Lo, Alex Y., 2017. "Emission trading and carbon market performance in Shenzhen, China," Applied Energy, Elsevier, vol. 193(C), pages 414-425.
    20. repec:hum:wpaper:sfb649dp2014-050 is not listed on IDEAS
    21. Hintermann, Beat & Peterson, Sonja & Rickels, Wilfried, 2014. "Price and market behavior in Phase II of the EU ETS," Kiel Working Papers 1962, Kiel Institute for the World Economy (IfW Kiel).

    More about this item

    Keywords

    Stylized facts; Carbon emission market; Heavy tail; Volatility clustering; Autocorrelation; Long-range dependence;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • G19 - Financial Economics - - General Financial Markets - - - Other

    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:phsmap:v:555:y:2020:i:c:s0378437120303691. 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.journals.elsevier.com/physica-a-statistical-mechpplications/ .

    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.