IDEAS home Printed from https://ideas.repec.org/a/eee/eneeco/v127y2023ipas0140988323005479.html
   My bibliography  Save this article

Differences in carbon risk spillovers with green versus traditional assets: Evidence from a full distributional analysis

Author

Listed:
  • Duan, Kun
  • Liu, Yang
  • Yan, Cheng
  • Huang, Yingying

Abstract

This paper studies the dynamic risk spillover of carbon and financial markets through a quantile-based framework. Potential asymmetry of the cross-market spillover is examined from the perspectives of the data distribution, differences in financial asset types, and pre and post periods of the COVID-19 pandemic onset. Using an international daily dataset covering the recent decade, our empirical analysis offers supportive evidence of established theoretical expectations. The empirical results demonstrate a unidirectional risk spillover from the carbon market to both traditional and green asset markets. The spillover is weakly positive under various market conditions, indicating a consistent diversification gain of carbon commodities against financial assets. Carbon's sheltering role is further enhanced as a hedge for green assets, in particular conditions when the risk levels of carbon and green markets are high and low, respectively. In addition, the onset of the pandemic is found to strengthen cross-market risk spillovers.

Suggested Citation

  • Duan, Kun & Liu, Yang & Yan, Cheng & Huang, Yingying, 2023. "Differences in carbon risk spillovers with green versus traditional assets: Evidence from a full distributional analysis," Energy Economics, Elsevier, vol. 127(PA).
    • Handle: RePEc:eee:eneeco:v:127:y:2023:i:pa:s0140988323005479
    DOI: 10.1016/j.eneco.2023.107049
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0140988323005479
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eneco.2023.107049?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. Le, Lan-TN & Yarovaya, Larisa & Nasir, Muhammad Ali, 2021. "Did COVID-19 change spillover patterns between Fintech and other asset classes?," Research in International Business and Finance, Elsevier, vol. 58(C).
    2. Mehmet Balcilar & Rangan Gupta & Christian Pierdzioch & Mark E. Wohar, 2018. "Terror attacks and stock-market fluctuations: evidence based on a nonparametric causality-in-quantiles test for the G7 countries," The European Journal of Finance, Taylor & Francis Journals, vol. 24(4), pages 333-346, March.
    3. Hammoudeh, Shawkat & Ajmi, Ahdi Noomen & Mokni, Khaled, 2020. "Relationship between green bonds and financial and environmental variables: A novel time-varying causality," Energy Economics, Elsevier, vol. 92(C).
    4. Huang, Yingying & Duan, Kun & Urquhart, Andrew, 2023. "Time-varying dependence between Bitcoin and green financial assets: A comparison between pre- and post-COVID-19 periods," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 82(C).
    5. Wang, Xiong & Li, Jingyao & Ren, Xiaohang, 2022. "Asymmetric causality of economic policy uncertainty and oil volatility index on time-varying nexus of the clean energy, carbon and green bond," International Review of Financial Analysis, Elsevier, vol. 83(C).
    6. Balcılar, Mehmet & Demirer, Rıza & Hammoudeh, Shawkat & Nguyen, Duc Khuong, 2016. "Risk spillovers across the energy and carbon markets and hedging strategies for carbon risk," Energy Economics, Elsevier, vol. 54(C), pages 159-172.
    7. Xiao, Zhijie & Koenker, Roger, 2009. "Conditional Quantile Estimation for Generalized Autoregressive Conditional Heteroscedasticity Models," Journal of the American Statistical Association, American Statistical Association, vol. 104(488), pages 1696-1712.
    8. Li, Jianping & Li, Jingyu & Zhu, Xiaoqian & Yao, Yinhong & Casu, Barbara, 2020. "Risk spillovers between FinTech and traditional financial institutions: Evidence from the U.S," International Review of Financial Analysis, Elsevier, vol. 71(C).
    9. Amine Ben Amar & Fateh Bélaïd & Adel Ben Youssef & Khaled Guesmi, 2021. "Connectedness among regional financial markets in the context of the COVID-19," Applied Economics Letters, Taylor & Francis Journals, vol. 28(20), pages 1789-1796, November.
    10. Tolliver, Clarence & Keeley, Alexander Ryota & Managi, Shunsuke, 2020. "Policy targets behind green bonds for renewable energy: Do climate commitments matter?," Technological Forecasting and Social Change, Elsevier, vol. 157(C).
    11. Duan, Kun & Zhao, Yanqi & Wang, Zhong & Chang, Yujia, 2023. "Asymmetric spillover from Bitcoin to green and traditional assets: A comparison with gold," International Review of Economics & Finance, Elsevier, vol. 88(C), pages 1397-1417.
    12. Liu, Jiatong & Mao, Weifang & Qiao, Xingzhi, 2023. "Dynamic and asymmetric effects between carbon emission trading, financial uncertainties, and Chinese industry stocks: Evidence from quantile-on-quantile and causality-in-quantiles analysis," The North American Journal of Economics and Finance, Elsevier, vol. 65(C).
    13. Ren, Xiaohang & Zhong, Yan & Cheng, Xu & Yan, Cheng & Gozgor, Giray, 2023. "Does carbon price uncertainty affect stock price crash risk? Evidence from China," Energy Economics, Elsevier, vol. 122(C).
    14. Feng, Hao & Gao, Da & Duan, Kun & Urquhart, Andrew, 2023. "Does Bitcoin affect decomposed oil shocks differently? Evidence from a quantile-based framework," International Review of Financial Analysis, Elsevier, vol. 89(C).
    15. Huang, Yingying & Duan, Kun & Mishra, Tapas, 2021. "Is Bitcoin really more than a diversifier? A pre- and post-COVID-19 analysis," Finance Research Letters, Elsevier, vol. 43(C).
    16. Bertrand Candelon & Sessi Tokpavi, 2016. "A Nonparametric Test for Granger Causality in Distribution With Application to Financial Contagion," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 34(2), pages 240-253, April.
    17. Jeong, Kiho & Härdle, Wolfgang K. & Song, Song, 2012. "A Consistent Nonparametric Test For Causality In Quantile," Econometric Theory, Cambridge University Press, vol. 28(4), pages 861-887, August.
    18. Sun, Xiaotian & Fang, Wei & Gao, Xiangyun & An, Haizhong & Liu, Siyao & Wu, Tao, 2022. "Complex causalities between the carbon market and the stock markets for energy intensive industries in China," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 404-417.
    19. Nishiyama, Yoshihiko & Hitomi, Kohtaro & Kawasaki, Yoshinori & Jeong, Kiho, 2011. "A consistent nonparametric test for nonlinear causality—Specification in time series regression," Journal of Econometrics, Elsevier, vol. 165(1), pages 112-127.
    20. Alexander, Carol & Lazar, Emese & Stanescu, Silvia, 2013. "Forecasting VaR using analytic higher moments for GARCH processes," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 36-45.
    21. Li, Yiying & Yan, Cheng & Ren, Xiaohang, 2023. "Do uncertainties affect clean energy markets? Comparisons from a multi-frequency and multi-quantile framework," Energy Economics, Elsevier, vol. 121(C).
    22. Bertrand Candelon & Sessi Tokpavi, 2016. "A Nonparametric Test for Granger Causality in Distribution With Application to Financial Contagion," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 34(2), pages 240-253, April.
    23. Bannigidadmath, Deepa & Narayan, Paresh Kumar, 2022. "Economic importance of correlations for energy and other commodities," Energy Economics, Elsevier, vol. 107(C).
    24. Paresh Kumar Narayan & Syed Aun R. Rizvi & Ali Sakti, 2022. "Did green debt instruments aid diversification during the COVID-19 pandemic?," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-15, December.
    25. Duan, Kun & Li, Zeming & Urquhart, Andrew & Ye, Jinqiang, 2021. "Dynamic efficiency and arbitrage potential in Bitcoin: A long-memory approach," International Review of Financial Analysis, Elsevier, vol. 75(C).
    26. Demiralay, Sercan & Gencer, Hatice Gaye & Bayraci, Selcuk, 2022. "Carbon credit futures as an emerging asset: Hedging, diversification and downside risks," Energy Economics, Elsevier, vol. 113(C).
    27. Reboredo, Juan C. & Ugolini, Andrea, 2020. "Price connectedness between green bond and financial markets," Economic Modelling, Elsevier, vol. 88(C), pages 25-38.
    28. Narayan, Paresh Kumar, 2021. "COVID-19 research outcomes: An agenda for future research," Economic Analysis and Policy, Elsevier, vol. 71(C), pages 439-445.
    29. Maretno Agus Harjoto & Fabrizio Rossi & John K. Paglia, 2021. "COVID-19: stock market reactions to the shock and the stimulus," Applied Economics Letters, Taylor & Francis Journals, vol. 28(10), pages 795-801, June.
    30. 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).
    31. Liu, Min, 2022. "The driving forces of green bond market volatility and the response of the market to the COVID-19 pandemic," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 288-309.
    32. Ping Wei & Yinshu Qi & Xiaohang Ren & Kun Duan, 2022. "Does Economic Policy Uncertainty Affect Green Bond Markets? Evidence from Wavelet-Based Quantile Analysis," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(15), pages 4375-4388, December.
    33. Jiménez-Rodríguez, Rebeca, 2019. "What happens to the relationship between EU allowances prices and stock market indices in Europe?," Energy Economics, Elsevier, vol. 81(C), pages 13-24.
    34. Xu, Lin & Wu, Chenyang & Qin, Quande & Lin, Xiaoying, 2022. "Spillover effects and nonlinear correlations between carbon emissions and stock markets: An empirical analysis of China's carbon-intensive industries," Energy Economics, Elsevier, vol. 111(C).
    35. Li, Houjian & Li, Qingman & Huang, Xinya & Guo, Lili, 2023. "Do green bonds and economic policy uncertainty matter for carbon price? New insights from a TVP-VAR framework," International Review of Financial Analysis, Elsevier, vol. 86(C).
    36. Duan, Kun & Zhao, Yanqi & Urquhart, Andrew & Huang, Yingying, 2023. "Do clean and dirty cryptocurrencies connect with financial assets differently? The role of economic policy uncertainty," Energy Economics, Elsevier, vol. 127(PA).
    37. Goodell, John W. & Goutte, Stephane, 2021. "Diversifying equity with cryptocurrencies during COVID-19," International Review of Financial Analysis, Elsevier, vol. 76(C).
    38. Duan, Kun & Gao, Yang & Mishra, Tapas & Satchell, Stephen, 2023. "Efficiency dynamics across segmented Bitcoin Markets: Evidence from a decomposition strategy," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 83(C).
    39. Ren, Xiaohang & Wang, Rui & Duan, Kun & Chen, Jinyu, 2022. "Dynamics of the sheltering role of Bitcoin against crude oil market crash with varying severity of the COVID-19: A comparison with gold," Research in International Business and Finance, Elsevier, vol. 62(C).
    40. Duan, Kun & Ren, Xiaohang & Shi, Yukun & Mishra, Tapas & Yan, Cheng, 2021. "The marginal impacts of energy prices on carbon price variations: Evidence from a quantile-on-quantile approach," Energy Economics, Elsevier, vol. 95(C).
    41. Zhao, Lili & Liu, Wenhua & Zhou, Min & Wen, Fenghua, 2022. "Extreme event shocks and dynamic volatility interactions: The stock, commodity, and carbon markets in China," Finance Research Letters, Elsevier, vol. 47(PA).
    42. Naeem, Muhammad Abubakr & Karim, Sitara, 2021. "Tail dependence between bitcoin and green financial assets," Economics Letters, Elsevier, vol. 208(C).
    43. Yan, Cheng & Cheng, Tingting, 2019. "In search of the optimal number of fund subgroups," Journal of Empirical Finance, Elsevier, vol. 50(C), pages 78-92.
    44. 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).
    45. Cheng Yan, 2018. "Hot money in disaggregated capital flows," The European Journal of Finance, Taylor & Francis Journals, vol. 24(14), pages 1190-1223, September.
    Full references (including those not matched with items on IDEAS)

    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. Duan, Kun & Zhao, Yanqi & Urquhart, Andrew & Huang, Yingying, 2023. "Do clean and dirty cryptocurrencies connect with financial assets differently? The role of economic policy uncertainty," Energy Economics, Elsevier, vol. 127(PA).
    2. Feng, Hao & Gao, Da & Duan, Kun & Urquhart, Andrew, 2023. "Does Bitcoin affect decomposed oil shocks differently? Evidence from a quantile-based framework," International Review of Financial Analysis, Elsevier, vol. 89(C).
    3. Huang, Yingying & Duan, Kun & Urquhart, Andrew, 2023. "Time-varying dependence between Bitcoin and green financial assets: A comparison between pre- and post-COVID-19 periods," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 82(C).
    4. Ren, Xiaohang & Li, Yiying & yan, Cheng & Wen, Fenghua & Lu, Zudi, 2022. "The interrelationship between the carbon market and the green bonds market: Evidence from wavelet quantile-on-quantile method," Technological Forecasting and Social Change, Elsevier, vol. 179(C).
    5. Liu, Jiatong & Mao, Weifang & Qiao, Xingzhi, 2023. "Dynamic and asymmetric effects between carbon emission trading, financial uncertainties, and Chinese industry stocks: Evidence from quantile-on-quantile and causality-in-quantiles analysis," The North American Journal of Economics and Finance, Elsevier, vol. 65(C).
    6. Tiwari, Aviral Kumar & Abakah, Emmanuel Joel Aikins & Doğan, Buhari & Ghosh, Sudeshna, 2023. "Sustainable debt and gas markets: A new look using the time-varying wavelet-windowed cross-correlation approach," Energy Economics, Elsevier, vol. 120(C).
    7. Pham, Linh & Karim, Sitara & Naeem, Muhammad Abubakr & Long, Cheng, 2022. "A tale of two tails among carbon prices, green and non-green cryptocurrencies," International Review of Financial Analysis, Elsevier, vol. 82(C).
    8. 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).
    9. Mirza, Nawazish & Naeem, Muhammad Abubakr & Ha Nguyen, Thi Thu & Arfaoui, Nadia & Oliyide, Johnson A., 2023. "Are sustainable investments interdependent? The international evidence," Economic Modelling, Elsevier, vol. 119(C).
    10. Doğan, Buhari & Trabelsi, Nader & Tiwari, Aviral Kumar & Ghosh, Sudeshna, 2023. "Dynamic dependence and causality between crude oil, green bonds, commodities, geopolitical risks, and policy uncertainty," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 36-62.
    11. Emmanuel Joel Aikins Abakah & Aviral Kumar Tiwari & Chi‐Chuan Lee & Matthew Ntow‐Gyamfi, 2023. "Quantile price convergence and spillover effects among Bitcoin, Fintech, and artificial intelligence stocks," International Review of Finance, International Review of Finance Ltd., vol. 23(1), pages 187-205, March.
    12. Duan, Kun & Ren, Xiaohang & Wen, Fenghua & Chen, Jinyu, 2023. "Evolution of the information transmission between Chinese and international oil markets: A quantile-based framework," Journal of Commodity Markets, Elsevier, vol. 29(C).
    13. Peng, Cheng & Zhu, Huiming & Guo, Yawei & Chen, Xiuyun, 2018. "Risk spillover of international crude oil to China's firms: Evidence from granger causality across quantile," Energy Economics, Elsevier, vol. 72(C), pages 188-199.
    14. Mokni, Khaled & Bouteska, Ahmed & Nakhli, Mohamed Sahbi, 2022. "Investor sentiment and Bitcoin relationship: A quantile-based analysis," The North American Journal of Economics and Finance, Elsevier, vol. 60(C).
    15. Wei, Ping & Qi, Yinshu & Ren, Xiaohang & Gozgor, Giray, 2023. "The role of the COVID-19 pandemic in time-frequency connectedness between oil market shocks and green bond markets: Evidence from the wavelet-based quantile approaches," Energy Economics, Elsevier, vol. 121(C).
    16. 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).
    17. 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).
    18. Li, Jianping & Li, Jingyu & Zhu, Xiaoqian & Yao, Yinhong & Casu, Barbara, 2020. "Risk spillovers between FinTech and traditional financial institutions: Evidence from the U.S," International Review of Financial Analysis, Elsevier, vol. 71(C).
    19. Lovcha, Yuliya & Perez-Laborda, Alejandro & Sikora, Iryna, 2022. "The determinants of CO2 prices in the EU emission trading system," Applied Energy, Elsevier, vol. 305(C).
    20. Sharma, Gagan Deep & Shahbaz, Muhammad & Singh, Sanjeet & Chopra, Ritika & Cifuentes-Faura, Javier, 2023. "Investigating the nexus between green economy, sustainability, bitcoin and oil prices: Contextual evidence from the United States," Resources Policy, Elsevier, vol. 80(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:eneeco:v:127:y:2023:i:pa:s0140988323005479. 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/eneco .

    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.