Work

Lead-lag relations between the Chinese carbon and energy markets: Evidence from extreme climate shocks

Year: 2024

Type: article

Abstract: • Lead-lag relationships exist between Chinese carbon prices and prices of international energy commodities. • The lead-lag relationship strengthens when climate events happen, especially extreme hot and cold periods as these demand more energy. • Knowledge about these varying lead-lag relationships can be used to improve hedging and trading decisions. • The thermal optimal causal path methodology detects changes in lead-lag relationships. We examine how lead-lag relationships between China's carbon market and energy markets change during extreme climate events. We show that extreme climate events strengthen the lead-lag relationship between markets, especially during extreme cold and heat periods during which energy demand spikes.

Source: Finance research letters

DOI: 10.1016/j.frl.2024.106317

Authors: Jingbo Li, Zhang-Hangjian Chen, Xiang Gao, Ronald Huisman, Kees Koedijk

Institutions: Jilin Agricultural University, Anhui University, Shanghai Business School, Utrecht University

Language: English

Topic: Market Dynamics and Volatility

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Climate action

Open Access status: hybrid

Estimated APC paid: $3,350