Dynamic Risk Spillover Effect between the Carbon and Stock Markets under the Shocks from Exogenous Events

Based on the DY spillover index model, we explore the static and dynamic risk spillover relationships between the Chinese carbon and stock markets from the perspective of the entire market and different industry levels. Furthermore, we examine the impact of diverse types of exogenous events on the risk spillover effects. The empirical results of the sectoral stock market show that the carbon market is the primary risk taker, and the risk spillover to the carbon market is mainly from high-carbon-emitting industries, such as the oil and electricity industries. However, the risk spillover relationship will be reversed under the shocks from exogenous events. The shocks from different types of exogenous events enhance the risk spillover from the carbon market to the stock market, specifically to the oil sector. The Sino–U.S. trade war and the COVID-19 outbreak are more impactful than government policies. These findings help investors to understand the risk conduct patterns among different financial sub-markets, and have implications for regulators to strengthen market risk management.