Original scientific paper
https://doi.org/10.1080/1331677X.2022.2049010
Carbon emission trading and equity markets in China: How liquidity is impacting carbon returns?
Junchao Zhang
Wei Han
Abstract
This paper aims to investigate the impact of liquidity on the
return dynamics between the carbon emission trading market
and the stock market in China from 2013 to 2021. In the carbon
emission trading market, we find that liquidity on any given day
can significantly predict the cross-section returns the next day.
Furthermore, we examine the spillover effect between the two
markets and find the carbon market has a greater impact on the
stock market. We also find evidence that stock market liquidity
can significantly improve the liquidity of the carbon market.
Finally, we observe that the volatility in the stock market not only
deteriorates the liquidity of the stock market but also the carbon
market, where the impact for the latter is from decreasing trading
volume and increasing prices.
Keywords
Carbon emission trading market; stock market; illiquidity; VAR model
Hrčak ID:
302982
URI
Publication date:
31.3.2023.
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