No abstract

In recent years, carbon market transactions have become more active. The number of countries participating in carbon market regulation is increasing, and the carbon market’s overall turnover continues to grow. It is important to study the features of carbon allowance price volatility for the stable development of the carbon market. This paper constructs a modified ICSS-GARCH model to analyze the volatility of carbon price returns and the dynamic characteristics of price fluctuations in the emissions trading system of the European Union (EU-ETS) and the Chinese carbon pilot markets in Hubei. The results show that fluctuations in carbon price returns have a leverage effect and that the impact of negative news on the market is stronger than that of positive news. The international climate and energy conferences, abnormal changes in traditional energy prices, and global public health emergencies all affect volatility and cause shocks to the carbon trading market. The modified ICSS-GARCH model with structural breaks can reduce the pseudovolatility of the return series to a certain extent and can improve the accuracy of the model. This research can give policymakers some implications about how to develop the carbon market and help market participants control the risks of fluctuations in carbon allowances. Regulators should enhance carbon price monitoring and focus on short-term shocks in the carbon market to reduce trading risks. The Chinese carbon market should strengthen the system design and develop carbon financial derivatives.

This study investigates the volatility risk premium on the emerging financial market. We also consider the expected return and ESG sentiment. Based on the SSE 50 ETF 5-minute high-frequency spots and daily options data from 2016 to 2021, we adopt nonparametric model-free approaches to calculate realized and implied volatilities. And the volatility risk premium is constructed by subtracting these volatility series. We examine the relations between the volatility risk premium and future excess returns as well as ESG sentiment through multifactor specifications. We find that the volatility risk premium also exists in the Chinese market and is significantly negative. In addition, the statistically positive correlation between the volatility risk premium and aggregate returns is an outlier compared to the empirically negative pattern in developed markets. At last, ESG sentiment is positively associated with the volatility risk premium, especially the impact of environmental and social. This evidence supports the agency theory, which indicates that investors perceive ESG investments as waste resources in a short term and become potentially risky.