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Examining the multi-timescales of European carbon market with grey relational analysis and empirical mode decomposition

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  • Zhu, Bangzhu
  • Yuan, Lili
  • Ye, Shunxin

Abstract

An in-depth understanding and modeling of the multi-timescales structure of carbon market can help understand the carbon pricing mechanism and provide the decision-making support for market supervisions and investment decisions. This study aims at identifying the multi-timescales of carbon market by a novel integrated model of grey relational analysis and empirical mode decomposition (EMD). Firstly, grey relational analysis is used to examine whether carbon price has multi-timescales; Secondly, EMD is used to decompose carbon price into a number of simpler components; and thirdly, the A. Schuster random probability method is used to test the multi-timescales of each component. Finally, the empirical results show that European futures market has six different timescales of 5.42 months, 11.75 months, 23.5 months, 35.25 months, 70.5 months, and 141 months.

Suggested Citation

  • Zhu, Bangzhu & Yuan, Lili & Ye, Shunxin, 2019. "Examining the multi-timescales of European carbon market with grey relational analysis and empirical mode decomposition," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 517(C), pages 392-399.
    • Handle: RePEc:eee:phsmap:v:517:y:2019:i:c:p:392-399
    DOI: 10.1016/j.physa.2018.11.016
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    7. Wen Zhang & Zhibin Wu, 2022. "Optimal hybrid framework for carbon price forecasting using time series analysis and least squares support vector machine," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 41(3), pages 615-632, April.

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