Volatility Spillovers In Cryptocurrencies And Carbon Markets

In recent years,the market value and currency of cryptocurrency have increased rapidly,becoming an important market that cannot be ignored in the world.However,the density and complexity of its calculation process make the mining and trading process have high energy consumption and high carbon emissions,resulting in huge environmental and health costs,affecting the global "carbon neutral" process.In addition,the price of some cryptocurrencies is unstable,and trading activities based on them are subject to great risks and regulatory disputes due to large adjustments and volatile earnings changes.Whether there is financial correlation between the carbon-intensive cryptocurrency market and the carbon market is still an issue that needs to be explored.By exploring the volatility spillover effect of the cryptocurrency market and the carbon market,we can timely understand the financial correlation and risk transmission mechanism between the two markets,which is conducive to guiding and regulating low-carbon investment,which is of positive significance to stabilizing the healthy development of the market and mitigating climate change.At the same time,it can provide reference for investors,policy makers and market regulators to avoid investment risks.The EU carbon emissions trading market is the world’s longest running,largest and most well-established carbon trading market.In this paper,the carbon market is divided into carbon futures market and carbon spot market,and 20 major cryptocurrencies are selected for a more comprehensive study of the fluctuation correlation between cryptocurrencies and carbon market.In terms of theory,literature review is conducted on the development of cryptocurrency and carbon market and related research on volatility spillover effect,and summarize the related concepts and theoretical basis involved in this paper.In the empirical study,based on the daily return data of the carbon futures market,the carbon spot market and the top 20 cryptocurrencies from 2013 to 2020,and considering the volatility characteristics of the financial market,the asymmetric effect is added to broadened the application of the model.This paper uses the VAR-GJR-BEKK-GARCH model to empirically test the existence and direction of volatility spillovers between cryptocurrency market and carbon market from a static perspective,and further uses the VAR-GJR-DCC-GARCH model to study the dynamic correlation of cryptocurrency carbon markets.At the same time,we further explores the differences and the reasons between cryptocurrency,carbon futures and carbon spot in the research conclusions.The conclusions are as follows :（1）One-way or two-way volatility spillovers are proven to exist between cryptocurrencies and carbon markets,which indicates that there is a certain financial correlation between cryptocurrencies and carbon market.（2）In terms of direction,it is mainly the one-way volatility spillover of the carbon market to cryptocurrency.The cryptocurrency market is primarily on the receiving end of price fluctuations in the carbon market.Yield changes in carbon markets will have a greater degree on the yield changes of the cryptocurrency market.While the carbon market is mainly a price transmitter,the price fluctuations in the cryptocurrency market have less impact on the carbon market.（3）Compared with spot carbon,volatility spillovers are more pronounced between cryptocurrencies and carbon futures,indicating that carbon futures market is more likely to affect the cryptocurrency market.This may be because carbon futures,which have the function of price discovery,can guide the price.（4）The dynamic correlation coefficients between carbon futures and carbon spot and cryptocurrency are both small,indicating that the correlation between carbon market and cryptocurrency market is weak.（5）The correlation coefficient between the carbon market and cryptocurrency changes significantly over time.Especially during the COVID-19 outbreak,the dynamic correlation coefficient between carbon market and cryptocurrency has undergone significant structural changes.（6）There are positive and negative changes in the dynamic correlation between cryptocurrencies and carbon futures and spot markets,indicating that risk contagion effect exists between some cryptocurrencies and carbon markets.Finally,produce specific suggestions : Focus on the energy consumption of cryptocurrencies and reduce the carbon emissions of cryptocurrencies;Take a rational look at cryptocurrency and carbon market portfolios to avoid trading risks;Strength en regulation of cryptocurrency and create a favorable market environment.