Is the cross-correlation of EU carbon market price with policy uncertainty really being? A multiscale multifractal perspective. (15th November 2021)

• Record Type: Journal Article
• Authors: Ye, Shunqiang; Dai, Peng-Fei; Nguyen, Hoai Trong; Huynh, Ngoc Quang Anh
• Is Part Of: Journal of environmental management. Volume 298(2021)
• Publication Date: 2021-11-15
• Subjects: EU ETS -- Carbon market -- Policy uncertainty -- Multifractal -- Cross-correlation; C53 -- G15 -- Q50; Environmental policy -- Periodicals; Environmental management -- Periodicals; Environment -- Periodicals; Ecology -- Periodicals; 363.705
• DOI: 10.1016/j.jenvman.2021.113490
• Languages: English
• ISSNs: 0301-4797

Abstract

Abstract: This paper aims to examine the cross-correlation relationship between EU carbon market price and the economic policy uncertainty. The United Kingdom and the United State of America are chosen as the representative countries. We first conduct the linear analysis to explore the correlation of EU carbon market futures return with the economic policy uncertainty of the two countries. Our findings show that there is no linear correlation between EU carbon market return and economic policy uncertainty. Then, we apply the multifractal detrended cross-correlation analysis to examine the cross-correlation between the return of EU carbon market futures and economic policy uncertainty. The empirical results indicate that the cross-correlations really exist, and the cross-correlation behavior structure over different carbon trading phases are not the same. Moreover, the empirical results show that the anti-persistence between the EU carbon futures return and economic policy uncertainty changes from the UK and the USA are both relatively strong. The findings provide deeper insights and management implications for the carbon market from a new perspective. Highlights: This paper examines the cross-correlation between the EPU and the EU carbon market. There is no linear correlation between the EPU and the EU carbon market. The cross-correlation behavior structure over different carbon trading phases are not the same. The anti-persistence between the EPU and the EU carbon futures return from the UK and the USA are both relatively strong.