Template-type: ReDIF-Paper 1.0
Author-Name: Chia-Lin Chang
Author-Workplace-Name: Department of Applied Economics Department of Finance National Chung Hsing University, Taiwan.
Author-Name: Michael McAleer
Author-Workplace-Name: Department of Quantitative Finance National Tsing Hua University, Taiwan And Discipline of Business Analytics University 
	of Sydney Business School, Australia And Econometric Institute Erasmus School of Economics Erasmus University Rotterdam, Netherlands 
	and Department of Quantitative Economics Complutense University of Madrid, Spain and Institute of Advanced Sciences Yokohama National 
	University, Japan.
Author-Name: Guangdong Zuo
Author-Workplace-Name: Department of Quantitative Finance National Tsing Hua University, Taiwan.
Title: Volatility spillovers and causality of carbon emissions, oil and coal spot and futures for the EU and USA
Abstract: Recent research shows that efforts to limit climate change should focus on reducing emissions of carbon dioxide over other greenhouse 
	gases or air pollutants. Many countries are paying substantial attention to carbon emissions to improve air quality and public health. 
	The largest source of carbon emissions from human activities in some countries in Europe and elsewhere is from burning fossil fuels for 
	electricity, heat, and transportation. The price of fuel influences carbon emissions, but the price of carbon emissions can also 
	influence the price of fuel. Owing to the importance of carbon emissions and their connection to fossil fuels, and the possibility of 
	Granger (1980) causality in spot and futures prices, returns and volatility of carbon emissions, it is not surprising that crude oil 
	and coal have recently become a very important research topic. For the USA, daily spot and futures prices are available for crude oil 
	and coal, but there are no daily spot or futures prices for carbon emissions. For the EU, there are no daily spot prices for coal or 
	carbon emissions, but there are daily futures prices for crude oil, coal and carbon emissions. For this reason, daily prices will be 
	used to analyse Granger causality and volatility spillovers in spot and futures prices of carbon emissions, crude oil, and coal. A 
	likelihood ratio test is developed to test the multivariate conditional volatility Diagonal BEKK model, which has valid regularity 
	conditions and asymptotic properties, against the alternative Full BEKK model, which has valid regularity conditions and asymptotic 
	properties under the null hypothesis of zero off-diagonal elements. Dynamic hedging strategies using optimal hedge ratios will be 
	suggested to analyse market fluctuations in the spot and futures returns and volatility of carbon emissions, crude oil and coal prices.
Classification-JEL: C58, L71, O13, P28, Q42.
Keywords: Carbon emissions, Fossil fuels, Crude oil, Coal, Low carbon targets, Green energy, Spot and futures prices, Granger causality and 
	volatility spillovers, Likelihood ration test, Diagonal BEKK, Full BEKK, Dynamic hedging.
Length: 51 pages 
Creation-Date: 2017-05
Number: 2017-15
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1715.txt
File-URL: https://eprints.ucm.es/id/eprint/43228/1/1715.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:1715