DO FINANCIAL AND ENERGY FACTORS DRIVE JUMPS IN CARBON DIOXIDE EMISSIONS TRADING FUTURES PRICES?

10.6291/AIAPM.202212_(11).0006

Chi-Wei He；Yung-Jang Wang

Carbon Emissions ； Price Jump Risk ； Driving Forces ； Financial Factor ； Energy Factor

Advances in Investment Analysis and Portfolio Management

11期（2022 / 12 / 01）

139 - 156

英文

In recent years, carbon dioxide emissions and economic development have attracted attention from all walks of life. Carbon emissions trading schemes are regarded as effective tools to reduce carbon dioxide emissions. Past empirical studies have mainly measured the volatility of carbon emissions trading futures prices using generalized autoregressive conditional heteroskedasticity (GARCH) models; however, they ignore the phenomenon of carbon dioxide emissions prices often changing dramatically, leading to misestimating the risks of carbon dioxide emissions prices. Some studies have explored the large jumps in carbon dioxide emissions prices but fail to discuss the driving forces behind the phenomenon. This paper describes the risks of large jumps in carbon emissions trading prices by the Glosten-Jagannathan-Runkle (GJR)-GARCH-jump model and investigates whether the jumps in carbon dioxide prices are affected by the energy and financial markets. According to the empirical results in this paper: (1) the return rate of carbon dioxide emissions prices experiences significant jumps, and the GJR-GARCH model with time-varying jump intensity (TVJI) is the best in capturing the time series dynamics of returns; (2) ignoring the TVJI may result in misestimating the asymmetric volatility; (3) using the GJR-GARCH model which ignores the jump effect may overestimate the conditional variance of the return rate of carbon dioxide emissions prices (namely, the risks); and (4) the Euro Stoxx 50 Index, coal price, gas price, and trading volume are the main forces driving jumps in the return rate of carbon dioxide emissions prices.

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