The volatility spillover effect of the European Union (EU) carbon financial market

This paper modifies the BEKK-GARCH model based on empirical results of VAR to analyze dynamic volatility spillover effect between European Union allowance (EUA) and certified emissions reduction (CER) markets during second third phases Emission Trading System (EU ETS). The show that (1) an asymmetric exists EUA CER market has a more significant market, (2) becomes weaker in phase III since Commission limited substitution for strictly global carbon requirements have become less demanding. Our study can help investors managers comprehensive understanding information risk transmission mechanism markets, thus, providing them with basis make investment decisions formulate policies.