Abstract
Using the quantile GARCH model estimators to gauge the bidirectional risk magnitude and the Granger causality test in risk distributions to detect the existence of risk spillovers, this paper explores the extreme risk spillovers of China’s regional carbon markets to local listed firm’s stock returns. From the perspectives of macro region level and micro firm level, the findings are outlined as follows. First, among the top three active carbon trading pilots (Hubei, Guangdong, and Shenzhen), Hubei pilot exhibits significant “low risk and high profit” features. Second, the predominant risk spillover effects to local listed firms are heterogeneous across pilots. Specifically, Hubei pilot is dominated by “up-to-down” effect, and Guangdong pilot is dominated by “down-to-down” effect, while Shenzhen pilot has no predominant effect. The heterogeneous risk spillover performance may be caused by the regional divergence in economic development, industry structure, and cap setting concerning each pilot. Third, the risk transmission performance from carbon allowance price to local listed firm’s stock returns depends on the firm’s belonging sector. That is, environment-related firms, either environment-friendly firms or pollution-intensive firms, are more susceptible to carbon markets’ risks compared with environment-unrelated firms. This paper supplies novel information on the risk transmission from carbon markets to local economic entities, which proves valuable not only for firms to improve risk aversion ability but also for policy-makers to perfect carbon markets’ mechanism.
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Notes
M: Scientific research and technical service
N: Water conservancy, environment, and public facility management
J: Finance
E: Construction
D: Electric power, heat, gas, and water production and supply
F: Wholesale and retail;
S: Diversified industries
K: Real estate
G: Transport, storage and postal service
R: Culture, sport and entertainment
L: Leasing and commercial services
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Funding
This study received financial support from the Chinese National Funding of Social Sciences (Grant Nos. 18VSJ055), National Natural Science Foundation of China (Grant Nos. 71573076), and Philosophy and Social Sciences of Guangdong Province Planning Project (Grant Nos. GD19YYJ04).
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Highlights
• This article investigates the extreme risk spillover of China regional carbon markets to local listed firm’s stock returns.
• Bidirectional value at risk (VaR) estimated by quantile linear GARCH model is used to depict the extreme risk magnitude in carbon markets.
• Granger causality test in risk distributions are employed to detect the existence of risk transmission from carbon markets to stock market.
• Heterogeneous risk spillover performance is found in both macro pilot level and micro firm level.
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Zhu, S., Tang, Y., Qiao, X. et al. The spillover effects of China’s regional environmental markets to local listed firms: a risk Granger causality approach. Environ Sci Pollut Res 27, 44123–44136 (2020). https://doi.org/10.1007/s11356-020-10320-2
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DOI: https://doi.org/10.1007/s11356-020-10320-2