Time-frequency connectedness and cross-quantile dependence between carbon emission trading and commodity markets: Evidence from China

ABSTRACT

This paper aims to investigate the dynamic connectedness and the cross-quantile dependence structure between carbon emission trading and commodity markets in China. We employ both the Baruník and Křehlík (2018) connectedness method and the Baruník and Kley (2019) cross-quantile dependence method to provide time-frequency-quantile evidence. In addition, we use a daily dataset from September 2, 2013, to September 30, 2022, to gauge the macroeconomic effects of the COVID-19 pandemic. We find that Petrochemical is the biggest contributor and recipient in the carbon-commodities system, and the results show that carbon markets are more influenced by other commodity markets than the reverse. Furthermore, the total connectedness is stronger in the short term but can increase over the long term, especially during the onset of COVID-19. The dynamic pair-wise results show that the carbon market can impact other commodity markets, but the effects are diverse and varied. The quantile-varying dependence between the carbon market and commodities is detected, and the cross-quantile dependence gradually strengthens as the trading days increase. This paper concludes with fruitful policy implications for resource decision-makers. © 2023 Elsevier Ltd