Analysis and Test of Multifractal Characteristics of the European Carbon Emissions Market—Based on the Framework of Wavelet Leaders

Abstract

In order to depict the complex price volatility of carbon emission permits under the European Union Emission Trading Scheme (EU ETS) accurately, we use the multifractal analysis based on wavelet leaders to extract the useful information from the carbon price series in this paper. Firstly, we test the multifractal property of the EU carbon market, and the empirical results show that the three phases of the EU ETS have shown significant multifractal characteristics. Compared with the other two phases, the multifractal characteristics of phase three are the strongest and the prices are the most uneven. Then, based on the width of the multifractal spectrum and the variances of the Hausdorff dimension, we innovatively propose an indicator VhS which has been proved to be effective in depicting the price volatility of the European carbon market. This paper provides a new train of thought for the risk identification and management in the multifractal market.