How do carbon prices react to regulatory announcements in China? A genetic algorithm with overlapping events

• Published in: Journal of cleaner production Vol. 277; p. 122644
• Main Authors: Ren, Xinyuan, Zhang, Dayong, Zhu, Lei, Han, Liyan
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 20.12.2020
• Subjects: algorithms; auctions; Carbon market; carbon markets; case studies; China; decision making; Efficient market hypothesis; Events study; Genetic algorithm; regression analysis; China; Events study; Genetic algorithm; Efficient market hypothesis; Carbon market
• ISSN: 0959-6526; 1879-1786
• DOI: 10.1016/j.jclepro.2020.122644

To investigate the impacts of regulatory announcements on China’s pilot carbon markets, as well as test the semi-strong form of market efficiency, a multivariate regression model with GARCH effects combined with multiple bilaterally modified dummy variables is established which allows us to investigate the potential overlapping influence from two timely adjacent events. The Shanghai, Guangdong and Hubei pilot carbon markets are taken as case studies. Based on the ADF test and the runs test, the results show that the China’s pilot carbon markets have achieved the weak form of efficiency but not the semi-strong form of efficiency. With the regression model the results show that the release of the allowance allocation plan will affect the carbon price trend, and the allowance auction can only play an auxiliary role as its impact on the carbon price is not decisive. In addition, ubiquitous ex-ante impact proves that the information leakage exists in each pilot carbon market. The model established in this paper is suitable for analyzing the impacts of overlapping events in different markets, which can effectively assist decision makers to distinguish the effects caused by overlapping events.