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Article: Emission trading and carbon market performance in Shenzhen, China

TitleEmission trading and carbon market performance in Shenzhen, China
Authors
KeywordsAllowance price
Carbon market
China
Climate change
Emission trading
GARCH model
Issue Date2017
PublisherPergamon. The Journal's web site is located at http://www.elsevier.com/locate/apenergy
Citation
Applied Energy, 2017, v. 193, p. 414-425 How to Cite?
AbstractChina has developed its own domestic carbon markets by setting up emission trading schemes. This study addresses concerns about the functioning of these schemes and the financial performance of the Chinese carbon market. It aims to assess an actual outcome of this policy intervention, i.e. trading records, which were used in our analysis to examine a key financial property of the allowance-based market in Shenzhen. In a mature market, assets that incur higher risks are likely to yield higher returns, i.e. a positive relationship. To examine this property, we solicited historical data on the price and trading volume of emission allowances. We statistically estimated the degree of volatility in the Shenzhen market and its relationship with expected return premium. We found that the rate of return was negatively associated with expected risk. This stands at odds with the usual expectation in the financial market and the prediction of asset pricing theory. Also, kurtosis in trading volume was excessively high and its fluctuations were highly concentrated. We discuss these findings in terms of market liquidity and information uncertainties, and offer some policy recommendations. More regulatory attention and economic fixes are needed to improve market efficiency and eliminate sources of market distortions.
Persistent Identifierhttp://hdl.handle.net/10722/239592
ISSN
2019 Impact Factor: 8.848
2015 SCImago Journal Rankings: 2.998
ISI Accession Number ID

 

DC FieldValueLanguage
dc.contributor.authorCong, R-
dc.contributor.authorLo, AYH-
dc.date.accessioned2017-03-21T09:16:15Z-
dc.date.available2017-03-21T09:16:15Z-
dc.date.issued2017-
dc.identifier.citationApplied Energy, 2017, v. 193, p. 414-425-
dc.identifier.issn0306-2619-
dc.identifier.urihttp://hdl.handle.net/10722/239592-
dc.description.abstractChina has developed its own domestic carbon markets by setting up emission trading schemes. This study addresses concerns about the functioning of these schemes and the financial performance of the Chinese carbon market. It aims to assess an actual outcome of this policy intervention, i.e. trading records, which were used in our analysis to examine a key financial property of the allowance-based market in Shenzhen. In a mature market, assets that incur higher risks are likely to yield higher returns, i.e. a positive relationship. To examine this property, we solicited historical data on the price and trading volume of emission allowances. We statistically estimated the degree of volatility in the Shenzhen market and its relationship with expected return premium. We found that the rate of return was negatively associated with expected risk. This stands at odds with the usual expectation in the financial market and the prediction of asset pricing theory. Also, kurtosis in trading volume was excessively high and its fluctuations were highly concentrated. We discuss these findings in terms of market liquidity and information uncertainties, and offer some policy recommendations. More regulatory attention and economic fixes are needed to improve market efficiency and eliminate sources of market distortions.-
dc.languageeng-
dc.publisherPergamon. The Journal's web site is located at http://www.elsevier.com/locate/apenergy-
dc.relation.ispartofApplied Energy-
dc.rightsThis work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.-
dc.subjectAllowance price-
dc.subjectCarbon market-
dc.subjectChina-
dc.subjectClimate change-
dc.subjectEmission trading-
dc.subjectGARCH model-
dc.titleEmission trading and carbon market performance in Shenzhen, China-
dc.typeArticle-
dc.identifier.emailLo, AYH: alexloyh@hku.hk-
dc.identifier.authorityLo, AYH=rp02023-
dc.description.naturepostprint-
dc.identifier.doi10.1016/j.apenergy.2017.02.037-
dc.identifier.scopuseid_2-s2.0-85014036594-
dc.identifier.hkuros271612-
dc.identifier.volume193-
dc.identifier.spage414-
dc.identifier.epage425-
dc.identifier.isiWOS:000398871400033-
dc.publisher.placeUnited Kingdom-
dc.identifier.issnl0306-2619-

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