Volatility Spillover Effects Between Carbon Futures and Stock Markets: A DGC-t-MSV-BN Model

This paper applies the Multivariate Stochastic Volatility (MSV) model, alongside its extended DGC-t-MSV model, and integrates Bayesian methods with MCMC techniques to develop the DGC-t-MSV-BN model. This model is specifically designed to analyze the volatility spillover effects between stock and futures markets. Key findings are as follows: (1) Significant volatility spillover effects exist from futures market to stock market. Notably, the spillover effects among the Chinese carbon futures market and both the Chinese and international stock markets are stronger than those within the Chinese carbon futures market, as well as the international gold and crude oil futures markets. (2) A notable negative volatility spillover effect is observed between Chinese carbon futures market and the international stock market. Conversely, a significant positive volatility spillover effect exists in the Chinese carbon futures market and the Chinese stock market. (3) The Chinese carbon futures market, as an emerging sector, displays high volatility and immaturity, yet it is developing at a rapid pace.