Identifying Risk Transmission in Carbon Market With Energy, Commodity and Financial Markets: Evidence From Time-Frequency and Extreme Risk Spillovers

Abstract

The carbon market is a vital tool to achieve carbon neutrality. This paper uses daily closing price data of Shenzhen carbon trading market, energy, commodity and financial markets from 18 October 2018 to 19 August 2021, examining the transmission of risk/information from the perspective of market volatility spillover and tail risk transmission based on quantile spillover. The stock market crash and COVID-19 have increased the volatility of the system substantially. Next, the increase in trading frequency is accompanied by an increase in total volatility connectivity, and the carbon market transforms into a recipient of systemic shocks. Finally, the results of tail risk transmission reveal that the net effect of carbon reception increases significantly. These findings have implications for policymakers to improve the carbon market and provide important insights for investors to trade in turbulent periods.