Extreme event shocks and dynamic volatility interactions: The stock, commodity, and carbon markets in China

This study adopts the time-varying parameter vector autoregression approach to examine dynamic volatility interactions of the stock, commodity, and carbon markets in China, with specific focus on the effects of extreme event shocks on market interactions. According to the results, a bidirectional Granger causality is observed between the stock and commodity market volatility, whereas these markets unidirectionally Granger cause the carbon market. Furthermore, the impacts of the carbon market on the stock and commodity markets substantially fluctuate, whereas interactions of the stock and commodity markets are relatively smooth. In particular, sudden extreme events have significant effects on market volatility interactions.

Automated summary

This study uses the time-varying parameter vector autoregression approach to investigate the dynamic volatility interactions among the stock, commodity, and carbon markets in China, with a specific focus on the impact of extreme event shocks on market interactions. The results reveal a bidirectional Granger causality between stock and commodity market volatility, while these markets unidirectionally Granger cause carbon market volatility. Additionally, the effects of the carbon market on stock and commodity market volatility fluctuate significantly, whereas the interactions between the stock and commodity markets remain relatively smooth. Sudden extreme events have a significant impact on market volatility interactions.