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Carbon emission allowance, global climate risk, and agricultural futures: An extreme spillover analysis in China

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  • Yao, Zengfu
  • Chen, Yonghuai
  • Deng, Shicheng
  • Zhang, Yifeng
  • Wei, Yu

Abstract

The aim of this paper is to investigate the extreme spillover effects between the newly launched China's national carbon emission allowance and agricultural futures markets with the influence of global climate risk. The results show that, first, under both normal and extreme market (climate risk) conditions, the three edible oil futures, i.e., soybean oil, palm oil and rapeseed oil, are strong spillover senders to other agricultural futures. Second, under low and normal climate risk states, climate transition risk is a spillover transmitter, while under high climate risk states, climate physical risk becomes a spillover sender. In addition, the network analysis shows that climate risk is an important information receiving and disseminating node, and large changes in it can lead to increased systemic risk across the network. Finally, China's carbon emission allowance market is always a spillover receiver across different market (climate risk) conditions, and can be used as an appropriate hedging instrument for climate risk and agricultural futures. These findings have valuable implications for both policymakers and agricultural investors.

Suggested Citation

  • Yao, Zengfu & Chen, Yonghuai & Deng, Shicheng & Zhang, Yifeng & Wei, Yu, 2025. "Carbon emission allowance, global climate risk, and agricultural futures: An extreme spillover analysis in China," Finance Research Letters, Elsevier, vol. 71(C).
    • Handle: RePEc:eee:finlet:v:71:y:2025:i:c:s154461232401420x
    DOI: 10.1016/j.frl.2024.106391
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    More about this item

    Keywords

    China's national carbon emission allowance market; Climate risk; Agricultural futures; Extreme spillover;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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