Research on jumps and volatility in China’s carbon market

This paper analyzes the jumping behavior and factors influencing volatility in China’s five carbon pilot markets. We confirm the presence of a volatility clustering effect, but find no evidence of a leverage effect. By employing the autoregressive jump intensity model proposed by Chan and Maheu (J Bus Econ Stat 20(3):377–389, 2002. 10.1198/073500102288618513), we observe prevalent price jumps in China’s carbon market, with the intensity of these jumps varying over time. After removing outliers, our model demonstrates robustness in the Guangdong, Beijing, and Hubei carbon markets. Assessing jump intensities around 2019 reaffirms the time-varying nature of jump intensity. As a particular case with larger price fluctuations, the carbon market in Shenzhen leans toward the general GARCH model. Additionally, we conduct a preliminary examination on the factors influencing volatility in China’s carbon market using a revised EGARCH model. Five exogenous variables are considered: crude oil price, stock index, commodity futures index, national economic policy uncertainty, and local carbon policy uncertainty. The outcomes suggest limited impacts of these fundamental factors on carbon prices, highlighting the significance of economic policy uncertainty in shaping the volatility of China’s carbon market. Finally, this paper proposes valuable policy insights and investment recommendations based on the research findings.