The Risk Spillover Effect Between the EUA Carbon Market and Carbon-intensive Sectors in European Stock Markets

Sammanfattning: This study examines the risk spillover effect between European emission allowance (EUA) carbon price and the indices of energy-intensive industries in the stock market in the European countries. To achieve this, we employ the Diebold and Yilmaz model to investigate both the static and dynamic risk spillover effect and discuss the impact of the economic conditions and policy changes on the carbon market. The findings reveal that the carbon market primarily acts as a risk receiver, with the main transmission of risk occurring from the electricity and energy sectors. Notably, these effects are more pronounced during periods marked by significant events. The results of our research can offer valuable insights to policymakers and investors, facilitating market stabilization and effective management of investment risks.