Efficiency of China’s carbon market: A case study of Hubei pilot market

ABSTRACT

Better understanding the carbon market can instruct further reforms to perfect its functionality, market efficiency is a key indicator to uncover its current performance. Previous studies have revealed foregone carbon market efficiency;however, given the dynamics of market, it merits the significance to track the up-to-date status. This paper specifically studies the Hubei pilot carbon market, which is quite representative considering its market scale as well as the COVID-19 pandemic context. Wild bootstrapping Variance Ratio test is implemented to detect the market efficiency with the most recent and abundant data. Results show that the market efficiency in the period of 2014 to 2020 is around 0.3951, less than 1, suggesting the weak form efficiency. Observing from sub-sample periods, the efficiency volatiles climbed from 0.3621 to 0.4027, but drop to 0.3985 finally. Furthermore, the market efficiency soaring after the COVID-19, which echoes the smooth reopening and local supporting policies. To some extent, this study enlarged the impact study of COVID-19, which should be meaningful for further research. Unique contribution of this paper is providing latest evidence for the efficiency of China’s pilot carbon market, as well as proofs for soaring market efficiency after the pandemic.