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Cross-Correlations between Energy and Emissions Markets: New Evidence from Fractal and Multifractal Analysis

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  • Gang-Jin Wang
  • Chi Xie
  • Shou Chen
  • Feng Han

Abstract

We supply a new perspective to describe and understand the behavior of cross-correlations between energy and emissions markets. Namely, we investigate cross-correlations between oil and gas (Oil-Gas), oil and CO 2 (Oil-CO 2 ), and gas and (Gas- ) based on fractal and multifractal analysis. We focus our study on returns of the oil, gas, and during the period of April 22, 2005–April 30, 2013. In the empirical analysis, by using the detrended cross-correlation analysis (DCCA) method, we find that cross-correlations for Oil-Gas, Oil- , and Gas- obey a power-law and are weakly persistent. Then, we adopt the method of DCCA cross-correlation coefficient to quantify cross-correlations between energy and emissions markets. The results show that their cross-correlations are diverse at different time scales. Next, based on the multifractal DCCA method, we find that cross-correlated markets have the nonlinear and multifractal nature and that the multifractality strength for three cross-correlated markets is arranged in the order of Gas- > Oil-Gas > Oil- . Finally, by employing the rolling windows method, which can be used to investigate time-varying cross-correlation scaling exponents, we analyze short-term and long-term market dynamics and find that the recent global financial crisis has a notable influence on short-term and long-term market dynamics.

Suggested Citation

  • Gang-Jin Wang & Chi Xie & Shou Chen & Feng Han, 2014. "Cross-Correlations between Energy and Emissions Markets: New Evidence from Fractal and Multifractal Analysis," Mathematical Problems in Engineering, Hindawi, vol. 2014, pages 1-13, January.
    • Handle: RePEc:hin:jnlmpe:197069
    DOI: 10.1155/2014/197069
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    Cited by:

    1. Akash P. POOJARI & Siva Kiran GUPTHA & G Raghavender RAJU, 2022. "Multifractal analysis of equities. Evidence from the emerging and frontier banking sectors," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(632), A), pages 61-80, Autumn.
    2. da Silva Filho, A.M. & Zebende, G.F. & de Castro, A.P.N. & Guedes, E.F., 2021. "Statistical test for Multiple Detrended Cross-Correlation Coefficient," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 562(C).
    3. Anderson Palmeira & Éder Pereira & Paulo Ferreira & Luisa Maria Diele-Viegas & Davidson Martins Moreira, 2022. "Long-Term Correlations and Cross-Correlations in Meteorological Variables and Air Pollution in a Coastal Urban Region," Sustainability, MDPI, vol. 14(21), pages 1-12, November.
    4. Derick David Quintino & Heloisa Lee Burnquist & Paulo Jorge Silveira Ferreira, 2021. "Carbon Emissions and Brazilian Ethanol Prices: Are They Correlated? An Econophysics Study," Sustainability, MDPI, vol. 13(22), pages 1-18, November.

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