A Study On The Spillover Effects And The Market Effectiveness Of China's Carbon Markets

The global warming caused by rapid growth of carbon dioxide emissions has affected economic, energy, trade, national security and many other areas, so it has become an urgent matter to be solved Carbon emissions trading market which adopts the market economy to obtain low-cost emission reduction is a powerful way to reduce greenhouse gas emissions and improve energy efficiency. Since the first pilot carbon market built in Shenzhen in 2013, China has launched seven pilot carbon markets and will establish national carbon market in 2017. Because of different level of economic development,quota allocation and market size,the pilot carbon markets develop in different forms,so the operating status has attracted much attention. Examining the spillover effects among China's carbon markets and between China's carbon markets and international carbon markets is useful to understand the operation of China's carbon market and is also beneficial to market participants.The main contents of this paper include the following three aspects:1. The VAR-BEKK-MGARCH model and DCC-MVGARCH model are applied to consider the dynamic spillover and dynamic correlation of the four pilot carbon markets according to the four markets' carbon price data. The results show that the mean spillover is not significant among the four carbon markets except for the mean spillover between Beijing and Hubei carbon market, Shenzhen and Hubei carbon market; there exist significant two-way volatility spillover effects among the four carbon markets, except the one-way volatility spillover effect from Hubei to Beijing carbon market; the dynamic correlation coefficient between two carbon market is small, which shows the dynamic correlation is not strong.2.The carbon price signal is analyzed by impulse response function and variance decomposition, and GARCH model is built to analyze the volatility spillover effect. The results show that the signal transmission process of carbon prices between Hubei and European Union carbon market is short, and the influence is weak. Furthermore, the impact of the two markets on their own volatility has a strong persistence, and the volatility spillover between the two markets is not significant.3.The market effectiveness of the four pilot carbon markets is tested with variance ratio and DFA for the further study on the sufficiency of information conduction in the carbon market. weak market effectiveness exist in Shenzhen and Shanghai carbon market, while the other two markets is not effective.Overall, the price information conduction in the pilot markets is not sufficient, and the risk transfer is stronger. The linkage between Chinese carbon market and EU carbon market is small, and they are relatively independent. At last, some suggestions are proposed on how to improve the carbon market trading system, the transparency of information, the liquidity of market and the ability of the participants to effectively reduce carbon emissions.