Dynamic linkages and spillover effects between CET market, coal market and stock market of new energy companies: A case of Beijing CET market in China

• Published in: Energy (Oxford) 2019-04, Vol.172, p.1198-1210
• Main Authors: Lin, Boqiang, Chen, Yufang
• Format: Article
• Language: English
• Subjects: Autoregressive models; Carbon allowance price; Carbon dioxide; Carbon dioxide emissions; Coal; Coal price; Dynamic linkages; Dynamic spillover effects; Emissions control; Energy consumption; Energy industry; Hedging; Linkages; Markets; New energy stocks; Volatility
• ISSN: 0360-5442; 1873-6785
• DOI: 10.1016/j.energy.2019.02.029

Chinese energy consumption structure has been dominated by coal for a long time, which makes China facing serious environmental problems. To achieve the target of CO2 emission reduction, a carbon emission trading (CET) market and promoting the development of new energy should be worthy choices. The issues of dynamic linkages and spillover effects between the CET market, the coal market and the stock market of new energy companies (NEC) are important topics for studies. The paper applies a VAR(1)-DCC-GARCH(1,1) model and a VAR(1)-BEKK-AGARCH(1,1) model to obtain the following conclusions: (1) There exists significant time-varying correlations and long-run persistence of shocks to the DCCs between Beijing CET market, the coal market and the stock market of NEC, and the coal market and the new energy stock market have higher volatility persistence; (2) There is a bi-directional spillover effects between the coal market and the stock market of NEC, which is consistent with the results of the Granger causality; (3) The optimal weight is 82.65% for new energy stock and 17.35% for coal. The optimal hedge ratio is 49.98% for coal, while the optimal hedge ratio is 17.34% for new energy stock. •There are significant time-varying correlations and long-run persistence of shocks to the DCCs between three markets.•There is a bi-directional volatility spillover between the coal market and the new energy stock market.•The optimal weight is 82.65% for new energy stock and 17.35% for coal.•The optimal hedge ratio is 17.34% for new energy stock and 49.98% for coal.