Dynamic Lead-Lag Relationships in the Global“Carbon-Energy-Stock”System Under Shocks From Exogenous Events

Abstract

This study employs the non-parametric thermal optimal path (TOP) method to investigate the dynamic lead-lag relationships within the global “Carbon-Energy-Stock” system under exogenous shocks. We find that the carbon and stock markets generally lead the fossil energy, with carbon markets leading stock markets. These relationships are significantly influenced by exogenous shocks of the COVID-19 pandemic and the Russo-Ukrainian war. Our findings are of potential interest to investors by providing valuable insights for optimizing portfolio allocation through the carbon assets integration from the global perspective, and be of great value for regulators to enhance the cross-market risk management during extreme events.

Keywords: Carbon markets, Global system, Lead-lag relationship, Exogenous shocks