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Volatility spillovers between the oil market and the European Union carbon emission market
Affiliation:1. School of Economics and Management, Wuyi University, Jiangmen, Guangdong 529020, China;2. Center for Energy and Environmental Policy Research, Beijing Institute of Technology, Beijing 100081, China;3. IPAG Business School, IPAG Lab, 184 Boulevard Saint-Germain, 75006 Paris, France;1. Lebow College of Business, Drexel University, Philadelphia, PA 19104, United States;2. IPAG Business School, Paris, France;3. London School of Economics, LSE Alumni Association, Houghton Street, London WC2 2AE, United Kingdom;4. University of Minho, Department of Economics and Economic Policies Research Unit (NIPE), Campus of Gualtar, 4710-057-Braga, Portugal;1. Drexel University, LeBow College of Business, 3200 Market Street, Philadelphia, PA 19104, USA;2. LEO-UMR 7322, University of Orléans, Orleans, France;3. IPAG Business School, 184, Boulevard Saint-Germain, 75006 Paris, France;4. London School of Economics, Financial Markets Group (FMG), Houghton Street, London WC2 2AE, United Kingdom;5. University of Minho, Department of Economics and Economic Policies Research Unit (NIPE), Campus of Gualtar, 4710-057, Braga, Portugal
Abstract:This paper examines the dynamics of volatility transmission between EU emission allowances (EUA) and oil markets using a range-based volatility measure. We propose a multivariate conditional autoregressive range model with bivariate lognormal distribution to capture volatility dynamics and volatility spillovers between oil and EUA markets. Our findings for Phase II of the European Union Emissions Trading Scheme point to the existence of volatility dynamics and leverage effects and to no significant volatility spillovers between these markets. These results remained robust to other volatility measures and model specifications.
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