Co-Movements between Eu Ets and the Energy Markets: A Var-Dcc-Garch Approach

This paper analyzes the co-movements of prices fossil fuels, energy stock markets and EU allowances. analysis is conducted in order to identify spillover effect volatility correlation among these financial markets, provide a scientific basis that shows interest incorporating sustainable assets design minimum risk strategies investment. To achieve this goal, we have used Vector Autoregressive-Dynamic Conditional Correlation-Generalized Autoregressive Heteroscedasticity (VAR-DCC-GARCH) model also incorporates index industrial companies as leading indicator level economic activity. In addition, conducts an impulse response determine how unexpected shocks are propagated along time, and, particular, they affect others, both mean, variance correlation. Therefore, results one- two-dimensional allow for study short long run dynamics relationship those prices, thus, providing greater meaning information investors, which has implications building their portfolios. The analyzed period was from January 2010 February 2021, so data include half phase II, full III onset IV ETS, well COVID-19 outbreak European context. We whether EUA price impulses demand clean stocks, important objective triggering investment energy. Our show transmission mechanism all relevant not only investors but policymakers construct early-warning system, revealing most channels. Moreover, viewpoint, observe decline dirty energies rise market, might be indication progress towards transition renewables sources within circular economy perspective. ETS achieving its goals, companies, aligned with role socially responsible initiatives, gaining acceptance terms investments, would beneficial environment.