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Time-frequency co-movements between climate uncertainty and carbon market returns: Evidence based on wavelet coherence analysis

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  • Cao, Jin-Hui
  • Xie, Chi
  • Wang, Gang-Jin
  • Zhu, You
  • Liu, Jiatong

Abstract

We explore the co-movement between two climate-related uncertainty indices and five carbon market returns in China from a time-frequency perspective based on wavelet coherence analysis. The co-movements are fragmented and time-varying, exhibiting complex intercorrelations. Several occasions of high correlations between CU and the two market returns (Hubei and Shanghai) are observed in the medium- and long-term, while those between CPU and the three market returns (Shenzhen, Guangdong and Hubei) are mainly in the short- and medium-term. The Shenzhen and Beijing markets present a climate policy-oriented feature after 2018, as a consistently strong co-movement between CPU and them is revealed. In addition, we find that the increases in climate (policy) uncertainty tend to reduce carbon market returns, mainly showing a negative correlation.

Suggested Citation

  • Cao, Jin-Hui & Xie, Chi & Wang, Gang-Jin & Zhu, You & Liu, Jiatong, 2025. "Time-frequency co-movements between climate uncertainty and carbon market returns: Evidence based on wavelet coherence analysis," Finance Research Letters, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:finlet:v:74:y:2025:i:c:s1544612325000431
    DOI: 10.1016/j.frl.2025.106778
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    More about this item

    Keywords

    Climate uncertainty; Climate policy uncertainty; Carbon market return; Co-movement; Wavelet coherence;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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