DYNAMIC RELATIONSHIP BETWEEN CARBON TRADING SYSTEM RESILIENCE AND LOW-CARBON STOCK MARKET RETURNS USING TIME-VARYING GRANGER CAUSALITY

Resilience is a fundamental metric for assessing the stability of a system in response to external shocks. To understand the resilience of carbon trading systems, this paper measures the resilience of the carbon trading market (CTM) to coal market shock. Initial exploration involves the measurement of resilience within the Guangdong CTM, encompassing metrics such as absorption intensity and absorption duration. Subsequently, we conduct a dynamic causality test using a recursive-evolving method, intricately examining the time-varying relationship between the resilience of the Guangdong CTM and the returns of the low-carbon stock index. Results show that: Commencing from 2020, absorption strength manifests a descending trend, concomitant with an elongation of absorption duration, indicative of a diminished risk-resilience capacity of the CTM during this period. From 2019 to 2022, a sustained and significant causal relationship is observed, with low-carbon stock returns exerting a lasting impact on the resilience of the CTM. In contrast, the influence of the resilience of the CTM on low-carbon stock returns appears comparatively subtle.