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Extreme risk spillovers across energy and carbon markets: Evidence from the quantile extended joint connectedness approach

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  • Guangxi Cao
  • Fei Xie

Abstract

Extreme events have further complicated the already closely related carbon‐energy system, but little research has focused on the extreme spillovers between energy and carbon markets. This paper combines quantile vector autoregression with the extended joint connectedness approach to introduce a new quantile extended joint connectedness approach to study the extreme spillover between the carbon market, fossil energy and clean energy markets, using daily data spanning from October 15, 2010 to February 25, 2022. The results show that markets are more closely linked at extreme risk, and the spillover is time‐varying and cyclical. The impact of extreme events will strengthen the links between markets. Further research shows different clean energy have heterogeneous spillovers on the carbon market, especially when impacted by extreme events. Finally, the hedging and portfolio effectiveness of clean energy to carbon market also show the existence of heterogeneity, and clean energy can diversify the portfolio of carbon market.

Suggested Citation

  • Guangxi Cao & Fei Xie, 2024. "Extreme risk spillovers across energy and carbon markets: Evidence from the quantile extended joint connectedness approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(2), pages 2155-2175, April.
    • Handle: RePEc:wly:ijfiec:v:29:y:2024:i:2:p:2155-2175
    DOI: 10.1002/ijfe.2781
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