IDEAS home Printed from https://ideas.repec.org/a/eee/finana/v83y2022ics1057521922002381.html
   My bibliography  Save this article

Quantile connectedness between energy, metal, and carbon markets

Author

Listed:
  • Chen, Jinyu
  • Liang, Zhipeng
  • Ding, Qian
  • Liu, Zhenhua

Abstract

This study employs a quantile connectedness approach to examine the dynamic linkages and tail risk connectedness between energy, metal, and carbon markets. Results show that the connectedness between energy, metal, and carbon markets is about 51% at the mean or median and 87% under extreme conditions. This means that the spillover effects of the two tails are much stronger than those under the conditional mean and normal markets, and the spillover effect between markets is heterogeneous under different market conditions. The connectedness between energy, metal, and carbon markets is time-varying, and the volatility is relatively small under extreme positive and negative conditions. Notably, the dynamic connectedness of energy, metal, and carbon markets is different in extreme upward and downward markets, which reflects the asymmetry and tail dependence of spillover effects between markets and indicates that spillover effects are different between the periods of upward and downward markets. In addition, the results of portfolio strategy show that holding short positions in the carbon market is an effective investment choice.

Suggested Citation

  • Chen, Jinyu & Liang, Zhipeng & Ding, Qian & Liu, Zhenhua, 2022. "Quantile connectedness between energy, metal, and carbon markets," International Review of Financial Analysis, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:finana:v:83:y:2022:i:c:s1057521922002381
    DOI: 10.1016/j.irfa.2022.102282
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1057521922002381
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.irfa.2022.102282?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Marimoutou, Vêlayoudom & Soury, Manel, 2015. "Energy markets and CO2 emissions: Analysis by stochastic copula autoregressive model," Energy, Elsevier, vol. 88(C), pages 417-429.
    2. Cagli, Efe Caglar & Taskin, Dilvin & Evrim Mandaci, Pınar, 2019. "The short- and long-run efficiency of energy, precious metals, and base metals markets: Evidence from the exponential smooth transition autoregressive models," Energy Economics, Elsevier, vol. 84(C).
    3. Andrew Ang & Geert Bekaert, 2002. "International Asset Allocation With Regime Shifts," The Review of Financial Studies, Society for Financial Studies, vol. 15(4), pages 1137-1187.
    4. Diebold, Francis X. & Yılmaz, Kamil, 2014. "On the network topology of variance decompositions: Measuring the connectedness of financial firms," Journal of Econometrics, Elsevier, vol. 182(1), pages 119-134.
    5. Mayer, Herbert & Rathgeber, Andreas & Wanner, Markus, 2017. "Financialization of metal markets: Does futures trading influence spot prices and volatility?," Resources Policy, Elsevier, vol. 53(C), pages 300-316.
    6. Zheng, Biao & Zhang, Yuquan & Chen, Yufeng, 2021. "Asymmetric connectedness and dynamic spillovers between renewable energy and rare earth markets in China: Evidence from firms’ high-frequency data," Resources Policy, Elsevier, vol. 71(C).
    7. Kocaarslan, Baris & Soytas, Ugur, 2019. "Dynamic correlations between oil prices and the stock prices of clean energy and technology firms: The role of reserve currency (US dollar)," Energy Economics, Elsevier, vol. 84(C).
    8. Tan, Xueping & Geng, Yong & Vivian, Andrew & Wang, Xinyu, 2021. "Measuring risk spillovers between oil and clean energy stocks: Evidence from a systematic framework," Resources Policy, Elsevier, vol. 74(C).
    9. Wen, Fenghua & Cao, Jiahui & Liu, Zhen & Wang, Xiong, 2021. "Dynamic volatility spillovers and investment strategies between the Chinese stock market and commodity markets," International Review of Financial Analysis, Elsevier, vol. 76(C).
    10. Evrim Mandacı, Pınar & Cagli, Efe Çaglar & Taşkın, Dilvin, 2020. "Dynamic connectedness and portfolio strategies: Energy and metal markets," Resources Policy, Elsevier, vol. 68(C).
    11. Li, Lei & Yin, Libo & Zhou, Yimin, 2016. "Exogenous shocks and the spillover effects between uncertainty and oil price," Energy Economics, Elsevier, vol. 54(C), pages 224-234.
    12. Saeed, Tareq & Bouri, Elie & Alsulami, Hamed, 2021. "Extreme return connectedness and its determinants between clean/green and dirty energy investments," Energy Economics, Elsevier, vol. 96(C).
    13. Nekhili, Ramzi & Mensi, Walid & Vo, Xuan Vinh, 2021. "Multiscale spillovers and connectedness between gold, copper, oil, wheat and currency markets," Resources Policy, Elsevier, vol. 74(C).
    14. Naeem, Muhammad Abubakr & Peng, Zhe & Suleman, Mouhammed Tahir & Nepal, Rabindra & Shahzad, Syed Jawad Hussain, 2020. "Time and frequency connectedness among oil shocks, electricity and clean energy markets," Energy Economics, Elsevier, vol. 91(C).
    15. Liu, Tangyong & Gong, Xu, 2020. "Analyzing time-varying volatility spillovers between the crude oil markets using a new method," Energy Economics, Elsevier, vol. 87(C).
    16. Zhang, Dayong & Broadstock, David C., 2020. "Global financial crisis and rising connectedness in the international commodity markets," International Review of Financial Analysis, Elsevier, vol. 68(C).
    17. Liao, Jianhui & Zhu, Xuehong & Chen, Jinyu, 2021. "Dynamic spillovers across oil, gold and stock markets in the presence of major public health emergencies," International Review of Financial Analysis, Elsevier, vol. 77(C).
    18. Bouri, Elie & Lucey, Brian & Saeed, Tareq & Vo, Xuan Vinh, 2020. "Extreme spillovers across Asian-Pacific currencies: A quantile-based analysis," International Review of Financial Analysis, Elsevier, vol. 72(C).
    19. Jiang, Shangrong & Li, Yuze & Lu, Quanying & Wang, Shouyang & Wei, Yunjie, 2022. "Volatility communicator or receiver? Investigating volatility spillover mechanisms among Bitcoin and other financial markets," Research in International Business and Finance, Elsevier, vol. 59(C).
    20. Jiang, Wei & Chen, Yunfei, 2022. "The time-frequency connectedness among metal, energy and carbon markets pre and during COVID-19 outbreak," Resources Policy, Elsevier, vol. 77(C).
    21. Jonathan A. Batten & Cetin Ciner & Brian M. Lucey, 2015. "Which precious metals spill over on which, when and why? Some evidence," Applied Economics Letters, Taylor & Francis Journals, vol. 22(6), pages 466-473, April.
    22. Chang, Kai & Ge, Fangping & Zhang, Chao & Wang, Weihong, 2018. "The dynamic linkage effect between energy and emissions allowances price for regional emissions trading scheme pilots in China," Renewable and Sustainable Energy Reviews, Elsevier, vol. 98(C), pages 415-425.
    23. Reboredo, Juan C. & Ugolini, Andrea, 2020. "Price spillovers between rare earth stocks and financial markets," Resources Policy, Elsevier, vol. 66(C).
    24. Bouri, Elie & Saeed, Tareq & Vo, Xuan Vinh & Roubaud, David, 2021. "Quantile connectedness in the cryptocurrency market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 71(C).
    25. Ahmad, Wasim, 2017. "On the dynamic dependence and investment performance of crude oil and clean energy stocks," Research in International Business and Finance, Elsevier, vol. 42(C), pages 376-389.
    26. Mensi, Walid & Shafiullah, Muhammad & Vo, Xuan Vinh & Kang, Sang Hoon, 2022. "Asymmetric spillovers and connectedness between crude oil and currency markets using high-frequency data," Resources Policy, Elsevier, vol. 77(C).
    27. Sadorsky, Perry, 2012. "Correlations and volatility spillovers between oil prices and the stock prices of clean energy and technology companies," Energy Economics, Elsevier, vol. 34(1), pages 248-255.
    28. Wen, Fenghua & Zhao, Haocen & Zhao, Lili & Yin, Hua, 2022. "What drive carbon price dynamics in China?," International Review of Financial Analysis, Elsevier, vol. 79(C).
    29. Wen, Fenghua & Tong, Xi & Ren, Xiaohang, 2022. "Gold or Bitcoin, which is the safe haven during the COVID-19 pandemic?," International Review of Financial Analysis, Elsevier, vol. 81(C).
    30. Ma, Yiqun & Wang, Junhao, 2021. "Time-varying spillovers and dependencies between iron ore, scrap steel, carbon emission, seaborne transportation, and China's steel stock prices," Resources Policy, Elsevier, vol. 74(C).
    31. Mokni, Khaled & Hammoudeh, Shawkat & Ajmi, Ahdi Noomen & Youssef, Manel, 2020. "Does economic policy uncertainty drive the dynamic connectedness between oil price shocks and gold price?," Resources Policy, Elsevier, vol. 69(C).
    32. Cui, Jinxin & Goh, Mark & Zou, Huiwen, 2021. "Coherence, extreme risk spillovers, and dynamic linkages between oil and China’s commodity futures markets," Energy, Elsevier, vol. 225(C).
    33. King, Mervyn A & Wadhwani, Sushil, 1990. "Transmission of Volatility between Stock Markets," The Review of Financial Studies, Society for Financial Studies, vol. 3(1), pages 5-33.
    34. Vêlayoudom Marimoutou & Manel Soury, 2015. "Energy markets and CO2 emissions: Analysis by stochastic copula autoregressive model," Post-Print hal-01456125, HAL.
    35. Tiwari, Aviral Kumar & Aikins Abakah, Emmanuel Joel & Gabauer, David & Dwumfour, Richard Adjei, 2022. "Dynamic spillover effects among green bond, renewable energy stocks and carbon markets during COVID-19 pandemic: Implications for hedging and investments strategies," Global Finance Journal, Elsevier, vol. 51(C).
    36. Reboredo, Juan C., 2014. "Volatility spillovers between the oil market and the European Union carbon emission market," Economic Modelling, Elsevier, vol. 36(C), pages 229-234.
    37. Gong, Xu & Shi, Rong & Xu, Jun & Lin, Boqiang, 2021. "Analyzing spillover effects between carbon and fossil energy markets from a time-varying perspective," Applied Energy, Elsevier, vol. 285(C).
    38. Kroner, Kenneth F. & Sultan, Jahangir, 1993. "Time-Varying Distributions and Dynamic Hedging with Foreign Currency Futures," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(4), pages 535-551, December.
    39. Mensi, Walid & Ali, Syed Riaz Mahmood & Vo, Xuan Vinh & Kang, Sang Hoon, 2022. "Multiscale dependence, spillovers, and connectedness between precious metals and currency markets: A hedge and safe-haven analysis," Resources Policy, Elsevier, vol. 77(C).
    40. Su, Xianfang, 2020. "Measuring extreme risk spillovers across international stock markets: A quantile variance decomposition analysis," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    41. Adekoya, Oluwasegun B. & Oliyide, Johnson A. & Noman, Ambreen, 2021. "The volatility connectedness of the EU carbon market with commodity and financial markets in time- and frequency-domain: The role of the U.S. economic policy uncertainty," Resources Policy, Elsevier, vol. 74(C).
    42. Liu, Zhenhua & Shi, Xunpeng & Zhai, Pengxiang & Wu, Shan & Ding, Zhihua & Zhou, Yuqin, 2021. "Tail risk connectedness in the oil-stock nexus: Evidence from a novel quantile spillover approach," Resources Policy, Elsevier, vol. 74(C).
    43. Shao, Liuguo & Zhang, Hua & Chen, Jinyu & Zhu, Xuehong, 2021. "Effect of oil price uncertainty on clean energy metal stocks in China: Evidence from a nonparametric causality-in-quantiles approach," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 407-419.
    44. Ding, Qian & Huang, Jianbai & Chen, Jinyu, 2021. "Dynamic and frequency-domain risk spillovers among oil, gold, and foreign exchange markets: Evidence from implied volatility," Energy Economics, Elsevier, vol. 102(C).
    45. Lin, Boqiang & Su, Tong, 2021. "Does COVID-19 open a Pandora's box of changing the connectedness in energy commodities?," Research in International Business and Finance, Elsevier, vol. 56(C).
    46. Diebold, Francis X. & Yilmaz, Kamil, 2012. "Better to give than to receive: Predictive directional measurement of volatility spillovers," International Journal of Forecasting, Elsevier, vol. 28(1), pages 57-66.
    47. Kroner, Kenneth F & Ng, Victor K, 1998. "Modeling Asymmetric Comovements of Asset Returns," The Review of Financial Studies, Society for Financial Studies, vol. 11(4), pages 817-844.
    48. Tan, Xueping & Sirichand, Kavita & Vivian, Andrew & Wang, Xinyu, 2020. "How connected is the carbon market to energy and financial markets? A systematic analysis of spillovers and dynamics," Energy Economics, Elsevier, vol. 90(C).
    49. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
    50. Vêlayoudom Marimoutou & Manel Soury, 2015. "Energy Markets and CO2 Emissions: Analysis by Stochastic Copula Autoregressive Model," Working Papers halshs-01148746, HAL.
    51. Grandell, Leena & Lehtilä, Antti & Kivinen, Mari & Koljonen, Tiina & Kihlman, Susanna & Lauri, Laura S., 2016. "Role of critical metals in the future markets of clean energy technologies," Renewable Energy, Elsevier, vol. 95(C), pages 53-62.
    52. Yahya, Muhammad & Ghosh, Sajal & Kanjilal, Kakali & Dutta, Anupam & Uddin, Gazi Salah, 2020. "Evaluation of cross-quantile dependence and causality between non-ferrous metals and clean energy indexes," Energy, Elsevier, vol. 202(C).
    53. Adler, Michael & Dumas, Bernard, 1983. "International Portfolio Choice and Corporation Finance: A Synthesis," Journal of Finance, American Finance Association, vol. 38(3), pages 925-984, June.
    54. Wang, Yudong & Guo, Zhuangyue, 2018. "The dynamic spillover between carbon and energy markets: New evidence," Energy, Elsevier, vol. 149(C), pages 24-33.
    55. Kang, Sang Hoon & McIver, Ron & Yoon, Seong-Min, 2017. "Dynamic spillover effects among crude oil, precious metal, and agricultural commodity futures markets," Energy Economics, Elsevier, vol. 62(C), pages 19-32.
    56. Mensi, Walid & Nekhili, Ramzi & Kang, Sang Hoon, 2022. "Quantile connectedness and spillovers analysis between oil and international REIT markets," Finance Research Letters, Elsevier, vol. 48(C).
    57. Vêlayoudom Marimoutou & Manel Soury, 2015. "Energy Markets and CO2 Emissions: Analysis by Stochastic Copula Autoregressive Model," AMSE Working Papers 1520, Aix-Marseille School of Economics, France.
    58. Mensi, Walid & Nekhili, Ramzi & Vo, Xuan Vinh & Kang, Sang Hoon, 2021. "Quantile dependencies between precious and industrial metals futures and portfolio management," Resources Policy, Elsevier, vol. 73(C).
    59. Uddin, Gazi Salah & Rahman, Md Lutfur & Hedström, Axel & Ahmed, Ali, 2019. "Cross-quantilogram-based correlation and dependence between renewable energy stock and other asset classes," Energy Economics, Elsevier, vol. 80(C), pages 743-759.
    60. Jin, Jiayu & Han, Liyan & Wu, Lei & Zeng, Hongchao, 2020. "The hedging effect of green bonds on carbon market risk," International Review of Financial Analysis, Elsevier, vol. 71(C).
    61. Chen, Jinyu & Liang, Zhipeng & Ding, Qian & Liu, Zhenhua, 2022. "Extreme spillovers among fossil energy, clean energy, and metals markets: Evidence from a quantile-based analysis," Energy Economics, Elsevier, vol. 107(C).
    62. Xiao, Jihong & Hu, Chunyan & Ouyang, Guangda & Wen, Fenghua, 2019. "Impacts of oil implied volatility shocks on stock implied volatility in China: Empirical evidence from a quantile regression approach," Energy Economics, Elsevier, vol. 80(C), pages 297-309.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhou, Yuqin & Wu, Shan & Zhang, Zeyi, 2022. "Multidimensional risk spillovers among carbon, energy and nonferrous metals markets: Evidence from the quantile VAR network," Energy Economics, Elsevier, vol. 114(C).
    2. Dai, Zhifeng & Zhang, Xiaotong & Yin, Zhujia, 2023. "Extreme time-varying spillovers between high carbon emission stocks, green bond and crude oil: Evidence from a quantile-based analysis," Energy Economics, Elsevier, vol. 118(C).
    3. Wang, Suhui, 2023. "Tail dependence, dynamic linkages, and extreme spillover between the stock and China's commodity markets," Journal of Commodity Markets, Elsevier, vol. 29(C).
    4. Zhang, Hongwei & Zhang, Yubo & Gao, Wang & Li, Yingli, 2023. "Extreme quantile spillovers and drivers among clean energy, electricity and energy metals markets," International Review of Financial Analysis, Elsevier, vol. 86(C).
    5. Bikramaditya Ghosh & Dimitrios Paparas, 2023. "Is There Any Pattern Regarding the Vulnerability of Smart Contracts in the Food Supply Chain to a Stressed Event? A Quantile Connectedness Investigation," JRFM, MDPI, vol. 16(2), pages 1-12, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chen, Jinyu & Liang, Zhipeng & Ding, Qian & Liu, Zhenhua, 2022. "Extreme spillovers among fossil energy, clean energy, and metals markets: Evidence from a quantile-based analysis," Energy Economics, Elsevier, vol. 107(C).
    2. Dai, Zhifeng & Zhang, Xiaotong & Yin, Zhujia, 2023. "Extreme time-varying spillovers between high carbon emission stocks, green bond and crude oil: Evidence from a quantile-based analysis," Energy Economics, Elsevier, vol. 118(C).
    3. Li, Hailing & Li, Yuxin & Zhang, Hua, 2023. "The spillover effects among the traditional energy markets, metal markets and sub-sector clean energy markets," Energy, Elsevier, vol. 275(C).
    4. Zhongzheng, Wang, 2023. "Extreme risk transmission mechanism between oil, green bonds and new energy vehicles," Innovation and Green Development, Elsevier, vol. 2(3).
    5. Su, Chi-Wei & Pang, Li-Dong & Qin, Meng & Lobonţ, Oana-Ramona & Umar, Muhammad, 2023. "The spillover effects among fossil fuel, renewables and carbon markets: Evidence under the dual dilemma of climate change and energy crises," Energy, Elsevier, vol. 274(C).
    6. Zhang, Hongwei & Zhang, Yubo & Gao, Wang & Li, Yingli, 2023. "Extreme quantile spillovers and drivers among clean energy, electricity and energy metals markets," International Review of Financial Analysis, Elsevier, vol. 86(C).
    7. Jiang, Wei & Chen, Yunfei, 2022. "The time-frequency connectedness among metal, energy and carbon markets pre and during COVID-19 outbreak," Resources Policy, Elsevier, vol. 77(C).
    8. Zhou, Mei-Jing & Huang, Jian-Bai & Chen, Jin-Yu, 2022. "Time and frequency spillovers between political risk and the stock returns of China's rare earths," Resources Policy, Elsevier, vol. 75(C).
    9. Tian, Tingting & Lai, Kee-hung & Wong, Christina W.Y., 2022. "Connectedness mechanisms in the “Carbon-Commodity-Finance” system: Investment and management policy implications for emerging economies," Energy Policy, Elsevier, vol. 169(C).
    10. Dai, Zhifeng & Zhu, Haoyang & Zhang, Xinhua, 2022. "Dynamic spillover effects and portfolio strategies between crude oil, gold and Chinese stock markets related to new energy vehicle," Energy Economics, Elsevier, vol. 109(C).
    11. Zhou, Yuqin & Wu, Shan & Zhang, Zeyi, 2022. "Multidimensional risk spillovers among carbon, energy and nonferrous metals markets: Evidence from the quantile VAR network," Energy Economics, Elsevier, vol. 114(C).
    12. Rizvi, Syed Kumail Abbas & Naqvi, Bushra & Mirza, Nawazish & Umar, Muhammad, 2022. "Safe haven properties of green, Islamic, and crypto assets and investor's proclivity towards treasury and gold," Energy Economics, Elsevier, vol. 115(C).
    13. Chen, Ying & Zhu, Xuehong & Chen, Jinyu, 2022. "Spillovers and hedging effectiveness of non-ferrous metals and sub-sectoral clean energy stocks in time and frequency domain," Energy Economics, Elsevier, vol. 111(C).
    14. Billah, Mabruk & Karim, Sitara & Naeem, Muhammad Abubakr & Vigne, Samuel A., 2022. "Return and volatility spillovers between energy and BRIC markets: Evidence from quantile connectedness," Research in International Business and Finance, Elsevier, vol. 62(C).
    15. Zhou, Wei & Chen, Yan & Chen, Jin, 2022. "Risk spread in multiple energy markets: Extreme volatility spillover network analysis before and during the COVID-19 pandemic," Energy, Elsevier, vol. 256(C).
    16. Tan, Xueping & Geng, Yong & Vivian, Andrew & Wang, Xinyu, 2021. "Measuring risk spillovers between oil and clean energy stocks: Evidence from a systematic framework," Resources Policy, Elsevier, vol. 74(C).
    17. Ding, Qian & Huang, Jianbai & Zhang, Hongwei, 2022. "Time-frequency spillovers among carbon, fossil energy and clean energy markets: The effects of attention to climate change," International Review of Financial Analysis, Elsevier, vol. 83(C).
    18. Tan, Xueping & Sirichand, Kavita & Vivian, Andrew & Wang, Xinyu, 2020. "How connected is the carbon market to energy and financial markets? A systematic analysis of spillovers and dynamics," Energy Economics, Elsevier, vol. 90(C).
    19. Cui, Jinxin & Maghyereh, Aktham, 2023. "Higher-order moment risk connectedness and optimal investment strategies between international oil and commodity futures markets: Insights from the COVID-19 pandemic and Russia-Ukraine conflict," International Review of Financial Analysis, Elsevier, vol. 86(C).
    20. Alomari, Mohammad & Mensi, Walid & Vo, Xuan Vinh & Kang, Sang Hoon, 2022. "Extreme return spillovers and connectedness between crude oil and precious metals futures markets: Implications for portfolio management," Resources Policy, Elsevier, vol. 79(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finana:v:83:y:2022:i:c:s1057521922002381. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620166 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.