TITLE:
Risk Spillover Effect and Trading Strategy between Carbon Emission Allowance and Carbon-Neutral Index
AUTHORS:
Zedong Cai, Xuxia Liao, Ruiyang Shi
KEYWORDS:
Carbon Emission Allowance, Carbon-Neutral Index, GARCH-Dynamic Copula-CoVaR, Risk Spillover, Trading Strategy
JOURNAL NAME:
Open Journal of Social Sciences,
Vol.11 No.1,
January
19,
2023
ABSTRACT: An index based on the carbon-neutral concept stock pool is built, and
GARCH-dynamic Copula-CoVaR is used to study the risk spillover effect between
the carbon market and the carbon-neutral index. The results show as follows. 1) There is a bi-directional risk spillover between the
national carbon emission allowance market and the carbon-neutral index, and the
positive correlation is becoming increasingly significant. 2) The correlation between the local carbon market and
the carbon-neutral index is weak, and there is an asymmetric risk spillover
relationship between them: the former can have a one-way risk impact on the
latter. 3) In general, the
carbon-neutral index is a net risk receiver, and carbon-neutral concept
enterprises face the risk of carbon emission allowance price fluctuation in the
process of green transformation. In addition, drawing on the research ideas
existed, appropriate “brown assets” and “green assets” in the carbon market and
stock market are found, and trading strategies including hedging and pair
trading are designed, providing new ideas for investors’ asset allocation.