An Investigation of Symmetric Risk Spillovers between Carbon Trading and Commodity Markets.

Systemic risk spreads through interconnections between markets in the financial system. This study investigated symmetric upside and downside risk spillovers between carbon assets trading markets and commodity markets, including energy, base metals, and agricultural commodities. To measure systemic risk and symmetric upside and downside risk spillovers between carbon emission allowance (CEA) and commodity markets, daily returns time series of the data utilized in modeling upside and downside risk spillovers were filtered through the ARMA-APGARCH process, and marginal distributions of each variable were estimated based on residuals following data collection and continuous calculation of daily data returns. Then, symmetric upside and downside risk spillovers between the studied groups were tested using methodology and the bootstrapped Kolmogorov-Smirnov (KS) test statistic. The research results confirmed the null hypothesis of symmetric upside and downside risk spillovers between commodity and carbon emission trading markets under investigation at a confidence level of 99%. In addition, based on the one-sided KS test, upside risk spillovers occur with greater intensity than downside risk spillovers (their downside counterparts) between the studied commodity and carbon emission trading markets.