Based on carbon spot prices selected from seven carbon pilots, we assess the financial performances related to carbon volatility in China on the overall perspective. According to the results, the Chinese carbon market fluctuated severely at the beginning of carbon trading, but has stabilised in general, despite several dramatic changes related to ‘yearly compliance events’. Long-term memory exists in the volatility series. Moreover, asymmetry exists in the Chinese carbon market, and volatility reacts more severely to good news than to bad news. Finally, we discuss our empirical results, and make certain suggestions regarding firms’ awareness, international cooperation and individual investors not only for policy makers in China but also for other developing countries who are contemplating either commencing carbon trading or improving the current market.

Based on the prices selected from European Energy Exchange (EEX) from 2013 to 2018, we investigate the inter-correlation of carbon spot and futures markets. Specifically, we adopt the widely used DCC-GARCH model and VAR-BEKK-GARCH model to conduct a comprehensive analysis on the carbon market, i.e., the dynamic correlation and volatility spillover between carbon spot and carbon futures. Moreover, we develop a hedge strategy based on the VAR-BEKK-GARCH model and calculate the hedging effectiveness (HE) value to evaluate the strategy performance. The empirical results show that (i) during our sample period, carbon spot and futures markets are highly correlated, (ii) carbon spot overflows to the futures market and vice versa, and (iii) the HE value is equal to 0.9370, indicating a good performance for the hedging strategy. Then, we provide further discussion on the relationship between carbon spot and futures markets by replacing our dataset with the data of phase II. The results do not change our conclusions on the dynamic correlation and volatility spillover. However, the HE value of phase III is higher than that of phase II, which indicates that the carbon futures market of phase III is not only an available market to hedge risk from the contemporaneous carbon spot market but also has a better hedge effectiveness than phase II.