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A comparative study on the volatility of EU and China’s carbon emission permits trading markets

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  • Sun, Limei
  • Xiang, Meiqi
  • Shen, Qing

Abstract

This paper applies the extended MFDFA method to analyze the volatility characteristics, multifractal features and asymmetry in EU carbon emission permits trading market(EUA) and the main Chinese carbon emission permits market including HBEA, SZA and GDEA. We divided the EUA market into three stages according to the phased construction plan of European commission. The empirical analysis shows that the fluctuation in the second and third stage of EUA market presents a long-term memory feature. However, there is obvious anti-persistent characteristics in the volatility of three main Chinese carbon emission permits trading markets and the first stage in EUA market. The multifractal degree in three main Chinese carbon emission permits trading markets is less than that in the first stage of EUA market, but far greater than the second and third stages. We also verified that the HBEA market has the weakest volatility and the least multifractal degree among three Chinese markets, and whose validity is second to the third stage of EUA market. In addition, the fluctuation of the EU and Chinese carbon emission permits trading markets are asymmetric. The EUA market has stronger reaction to good news, while Chinese carbon emission permits trading market still displays the leverage effect which verifies the volatility is more sensitive to the bad news in the second and third stages. Therefore, the results powerfully demonstrate that the Chinese carbon emission permits trading market is less mature and highly dynamic, which is similar to the level of first stage of EUA market. The volatility in Chinese markets is strong, and exists much noise in the system. So, the efficiency in Chinese markets is weaker than EU. Chinese markets are still far from maturity and efficiency.

Suggested Citation

  • Sun, Limei & Xiang, Meiqi & Shen, Qing, 2020. "A comparative study on the volatility of EU and China’s carbon emission permits trading markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 560(C).
    • Handle: RePEc:eee:phsmap:v:560:y:2020:i:c:s0378437120305409
    DOI: 10.1016/j.physa.2020.125037
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    Cited by:

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    2. Zhong, Meirui & Zhang, Rui & Ren, Xiaohang, 2023. "The time-varying effects of liquidity and market efficiency of the European Union carbon market: Evidence from the TVP-SVAR-SV approach," Energy Economics, Elsevier, vol. 123(C).
    3. Qiyun Cheng & Huiting Qiao & Yimiao Gu & Zhenxi Chen, 2023. "Price Dynamics and Interactions between the Chinese and European Carbon Emission Trading Markets," Energies, MDPI, vol. 16(4), pages 1-12, February.
    4. Wu Xie & Wenzhe Guo & Wenbin Shao & Fangyi Li & Zhipeng Tang, 2021. "Environmental and Health Co-Benefits of Coal Regulation under the Carbon Neutral Target: A Case Study in Anhui Province, China," Sustainability, MDPI, vol. 13(11), pages 1-15, June.
    5. Ying Li & Changgeng Zhu, 2023. "The Impact of Carbon Emissions Trading on the High Quality Development of Manufacturing Industry - The Evidence from China," Climate Economics and Finance, Anser Press, vol. 1(1), pages 29-44, November.
    6. Lei Zheng & Akira Omori & Jin Cao & Xuemeng Guo, 2023. "Environmental Regulation and Corporate Environmental Performance: Evidence from Chinese Carbon Emission Trading Pilot," Sustainability, MDPI, vol. 15(11), pages 1-18, May.
    7. Guangxi Cao & Fei Xie & Meijun Ling, 2022. "Spillover effects in Chinese carbon, energy and financial markets," International Finance, Wiley Blackwell, vol. 25(3), pages 416-434, December.
    8. Zhang, Wenting & He, Xie & Hamori, Shigeyuki, 2022. "Volatility spillover and investment strategies among sustainability-related financial indexes: Evidence from the DCC-GARCH-based dynamic connectedness and DCC-GARCH t-copula approach," International Review of Financial Analysis, Elsevier, vol. 83(C).
    9. Chen, Zhang-HangJian & Zhao, Shou-Yu & Song, Huai-Bing & Yang, Ming-Yuan & Li, Sai-Ping, 2024. "Dynamic volatility spillover relationships between the Chinese carbon and international energy markets from extreme climate shocks," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 626-645.

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