Spillover effects among crude oil, carbon, and stock markets: evidence from nonparametric causality-in-quantiles tests

ABSTRACT

This study investigates the spillovers and information transmission between carbon, crude oil, and stock markets under various market conditions in Phase III of the EU ETS. For this purpose, we use a novel causality-in-quantiles test method and quantile impulse response functions based on daily data of carbon futures, Brent spot, and three representative equity indices in the Europe over the period from 27 January 2014 to 18 September 2020. We find that crude oil market has a unidirectional spillover effect on carbon market, and this causality is significant under normal to bullish market conditions. Furthermore, the causality-in-quantiles between crude oil and stock markets varies with specific equality index, and the information transmission from crude oil to stock market is strong in the normal stock market but invalid when stock markets become extremely bearish or bullish. The COVID-19 epidemic may cause structural changes in the oil-carbon and oil-stock nexus.

KEYWORDS:

• Crude oil
• carbon market
• stock market
• causality-In-Quantile
• cuantile impulse response function

JEL CLASSIFICATION:

• C31
• Q40
• Q43
• Q54
• R11

Acknowledgements

The article is sponsored by the National Social Science Foundation of China (Grant No. 21&ZD098) and the Natural Science Fund of Hunan Province (2022JJ40647). Certainly, all remaining errors are our own.

Disclosure statement

No potential conflict of interest was reported by the authors.

Data availability statement

The data that support the findings of this study are available from the corresponding author upon reasonable request.

Notes

¹ The words “causal” or “causality” denote Granger causality all over this paper.

² Dollars per Barrel Not Seasonally Adjusted, Definitions, Sources and Explanatory http://www.eia.doe.gov/dnav/pet/TblDefs/pet_pri_spt_tbldef2.asp.

³ ECX EUA Futures, Continuous Contract #1. Non-adjusted price based on spot-month continuous contract calculations. Raw data from ICE.

⁴ CAC40 Index Futures, Continuous Contract #1. Non-adjusted price based on spot-month continuous contract calculations. Raw data from LIFFE.

⁵ DAX Futures, Continuous Contract #1. Non-adjusted price based on spot-month continuous contract calculations. Raw data from EUREX.

⁶ FTSE 100 Index Futures, Continuous Contract #1. Non-adjusted price based on spot-month continuous contract calculations. Raw data from LIFFE..

Additional information

Funding

The work was supported by the National Office for Philosophy and Social Sciences [21&ZD098]; Natural Science Fund of Hunan Province [2022JJ40647].