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Volatility spillovers between the oil market and the European Union carbon emission market


  • Reboredo, Juan C.


This paper examines the dynamics of volatility transmission between EU emission allowances (EUA) and oil markets using a range-based volatility measure. We propose a multivariate conditional autoregressive range model with bivariate lognormal distribution to capture volatility dynamics and volatility spillovers between oil and EUA markets. Our findings for Phase II of the European Union Emissions Trading Scheme point to the existence of volatility dynamics and leverage effects and to no significant volatility spillovers between these markets. These results remained robust to other volatility measures and model specifications.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:ecmode:v:36:y:2014:i:c:p:229-234 DOI: 10.1016/j.econmod.2013.09.039

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    References listed on IDEAS

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    Cited by:

    1. Luís Aguiar-Conraria & Maria Joana Soares & Rita Sousa, 2017. "California´s Carbon Market and Energy Prices: A Wavelet Analysis," NIPE Working Papers 13/2017, NIPE - Universidade do Minho.
    2. Green, Rikard & Larsson, Karl & Lunina, Veronika & Nilsson, Birger, 2016. "Cross-Commodity News Transmission and Volatility Spillovers in the German Energy Markets," Working Papers 2016:2, Lund University, Department of Economics, revised 11 Oct 2017.
    3. Rita Sousa & Luís Francisco Aguiar-Conraria & Maria Joana Soares, "undated". "Carbon and Energy Prices: Surfing the Wavelets of California," NIPE Working Papers 19/2014, NIPE - Universidade do Minho.
    4. Wen, Xiaoqian & Bouri, Elie & Roubaud, David, 2017. "Can energy commodity futures add to the value of carbon assets?," Economic Modelling, Elsevier, vol. 62(C), pages 194-206.
    5. Yu, Lean & Li, Jingjing & Tang, Ling & Wang, Shuai, 2015. "Linear and nonlinear Granger causality investigation between carbon market and crude oil market: A multi-scale approach," Energy Economics, Elsevier, vol. 51(C), pages 300-311.
    6. repec:eee:eneeco:v:67:y:2017:i:c:p:98-110 is not listed on IDEAS
    7. repec:eee:eneeco:v:66:y:2017:i:c:p:108-115 is not listed on IDEAS
    8. Liu, Xueyong & An, Haizhong & Li, Huajiao & Chen, Zhihua & Feng, Sida & Wen, Shaobo, 2017. "Features of spillover networks in international financial markets: Evidence from the G20 countries," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 479(C), pages 265-278.
    9. Yinpeng Zhang & Zhixin Liu & Xueying Yu, 2017. "The Diversification Benefits of Including Carbon Assets in Financial Portfolios," Sustainability, MDPI, Open Access Journal, vol. 9(3), pages 1-13, March.
    10. Tan, Xue-Ping & Wang, Xin-Yu, 2017. "Dependence changes between the carbon price and its fundamentals: A quantile regression approach," Applied Energy, Elsevier, vol. 190(C), pages 306-325.

    More about this item


    CO2 emission allowances; Oil prices; Volatility spillovers; Range volatility;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects


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