Title: Dynamic links between CO2 emission, oil price and stock market

Report Abstract:
European Emissions Trading System Union (EU-ETS) a cap-and-trade was launched in 2005 system. It has established a pricing system for carbon emission. Trading is economically efficient in reducing carbon emission. The carbon price signifies the amount participants in the EU ETS are willing to pay per EU allowance (1 allowance (EUA) equals to 1 tonne of CO2). Over the course of Phase 3, there are 50% of allowances will be auctioned. ICE Futures Europe is conducting auctions. The question how CO2 emission, oil price and stock market are connected has been studied by the literature extensively in past decades, from studies focusing on causality effects, commovments, spillovers, connectedness, and systemic risk, researchers primary try to answer the question using methods measuring the aggregate methods. This paper examines the dynamic links between CO2 emission, oil price and stock market in a time-varying fashion. We measure the volatility of the future prices of CO2 EU Allowance (EUA) and aim to analyse the its relation to the oil price and equity market. There is abundant research showing the significant relation between the movement of the EUA price and energy price. In this paper, we innovatively propose to investigate such relation in a dynamic behaviour using time-varying conditional correlation i.e. Dynamic conditional correlation (DCC) and cointegration. Time-varying correlation provides the early evidence of the interrelationship across the three variables. With the examination of the total index volatility intensity (connectedness spillover, Diebold and Yilmaz 2012), we are able to quantify the amount of contagion. Furthermore, the quantile copula causality helps to identify the directions as robustness test in further to D&Y method.

Speaker: Xiao Ling
Date/Time: 15:00 – 17:00PM, August 6, 2019
Location: Room 703, College of Economics and Management Building, Jiangjun Rd. Campus
Speaker Biography:
Dr. Xiao Ling, Associate Professor of Financial and Financial Management, Royal Holloway, University of London, Senior Fellowship of the UK Higher Education Academy, President of the British Alumni Association of Nanjing University of Aeronautics and Astronautics.