Multidimensional linkages among carbon, energy, and industrial metals markets: evidence from spillover effects and co-movements

This study investigates the spillover effects and co-movements among carbon, energy, and industrial metals markets using a multidimensional research framework encompassing the time, frequency, and time-frequency domains. The methodologies applied include the cointegration approach, a discrete wavelet-based Diebold-Yilmaz (DY) model, and wavelet coherence analysis. The findings are as follows: firstly, long-term cointegration relationships exist among these markets in the time domain. Secondly, the discrete wavelet-based DY model identifies the carbon and oil markets are the primary net spillover transmitters, while the gas, coal, and industrial metals markets are the major net spillover recipients. Finally, wavelet coherence analysis shows that co-movements are fragmented and time-varying in the time-frequency domain. Several occasions of high correlations among these markets are observed in the medium- and long-term, and these correlations have been intensified by crisis events. In addition, an increase in the carbon market price tends to drive up energy and industrial metals market returns, mainly exhibiting a positive correlation. These findings have significant implications for policymakers to formulate differentiated regulatory measures across different time horizons.