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How do carbon pricing spillover effects impact green asset price volatility? An empirical study based on the TVP-VAR-DY model

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  • He, Zheng
  • Liu, Zhengkai
  • Zhang, Congzhi
  • Zhao, Yuanjun

Abstract

This study examines the dynamic interrelationships between the carbon, green finance, and traditional energy markets in China, focusing on their spillover effects and time-varying characteristics. Using data from 2021 to 2024, this study employs the TVP-VAR-DY (Time-Varying Parameter Vector Autoregression with Diebold-Yilmaz Spillover Index) model to analyze these intermarket dynamics. The study's key findings are as follows. The carbon market exerts notable spillover effects on the green bond market, but remains primarily a “risk taker” with net spillover effects less than zero. Significant systemic risk spillovers occur during key events, such as the launch of the national carbon market in 2021 and spikes in coal and crude oil prices, highlighting the amplifying effects of specific markets conditions. Traditional energy markets, especially coal and crude oil, are dominant “risk transmitters,” while the carbon market and the green finance market, especially the green bond market, act as “risk receivers,” absorbing risks from other sectors. The impact of the carbon market diminishes over time owing to low liquidity and inefficient pricing mechanisms, highlighting the need for further development. These findings underscore the pivotal function of the carbon market in fostering sustainable development while concurrently identifying domains for policy and market enhancement to more efficaciously integrate carbon trading into China's overarching economic framework.

Suggested Citation

  • He, Zheng & Liu, Zhengkai & Zhang, Congzhi & Zhao, Yuanjun, 2025. "How do carbon pricing spillover effects impact green asset price volatility? An empirical study based on the TVP-VAR-DY model," Economic Analysis and Policy, Elsevier, vol. 85(C), pages 2162-2179.
    • Handle: RePEc:eee:ecanpo:v:85:y:2025:i:c:p:2162-2179
    DOI: 10.1016/j.eap.2025.03.008
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    1. Jining Wang & Tian Man & Lei Wang, 2025. "Volatility Spillover Effects Between Carbon Futures and Stock Markets: A DGC-t-MSV-BN Model," Mathematics, MDPI, vol. 13(15), pages 1-25, July.

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    JEL classification:

    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • P18 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Energy; Environment

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