A Study On The Market Efficiency And Spillover Effects Of China’s Pilot Carbon Markets

Carbon emissions trading market is a primary innovative practice of using markets mechanisms to control and reduce greenhouse gas emissions and promote green and low-carbon development.As a responsible developing country,China has successively launched carbon pilot markets since June 18,2013,started a national carbon market by the end of 2017,and has became the largest carbon trading country in the world.Due to the large differences of economic development levels,quota allocation rules and market size,the pilot carbon markets maintain an independent operating mechanism,so its operating status attracted much attention.This paper takes the daily trading carbon price of pilot markets,examines the market efficiency and the spillover effects among China’s carbon markets,which has certain significant reference for perfecting the unified carbon emission market in China.The contents of this paper are as follows :(1)Efficiency of China’s carbon market.An efficient carbon market is important for mitigating carbon emissions and many other energy issues.In this study we investigate the multifractality and efficiency of carbon market using Multifractal Detrended Fluctuation Analysis,and the data are based on the carbon price returns of seven pilots in the carbon market of China.First,we find the price return series is multifractal for both the short term and the long term.Asymmetric distributions of carbon prices and the general Hurst exponents in the return series are detected,which suggest a lack of efficiency in the pilot markets under study.Then,we measure the efficiencies of these carbon market pilots using an indicator that we develop based on the generalized Hurst exponents,and the results suggest ubiquitous inefficiencies among them.But it is also found that the efficiencies of most of the pilots have been improving over time.The ranking of the pilot markets’ efficiencies depends on the time window under study.For time scales shorter than a month,Chongqing pilot generally ranks the highest and Hubei pilot the lowest.Beijing pilot performs the best while Tianjin the worst when the time scale is longer.Lastly,regression results show that the carbon market pilot’s inefficiency value is positively correlated with market activity in the short run while negatively in the long run.(2)Mean spillover effects among China’s pilot carbon markets.Researches on the spillover effect across the pilot carbon markets help find the leading market in price discovery and provide references for the design of market mechanisms and related policy formulation in the national carbon market.The time-varying parameter state space model was used to analyze the trend of mean spillover effects across the seven pilot carbon markets in China.Results show that there is network of mean spillover across China’s seven pilot carbon markets,among which the Shenzhen,Guangdong,and the Shanghai pilot have spillover effects to and from other pilot,while the Beijing,Hubei,and Tianjin pilot are all receiver of spillover effects.But the Chongqing pilot is isolated from the network.The spillover effects all are one-way.Their values are significant at the early time period of the markets and tends to zero in the late period.Results reflect a certain correlation between China’s pilot carbon market,a sound basis of market integration and a gradual improvement of market mechanism in those pilots.