Dynamic spillovers of green, brown, and financial industries under the low-carbon transition: Evidence from China

Abstract

Climate change has garnered significant global attention, with uncertainty surrounding the economic consequences of the transition to low-carbon emissions posing potential risks to financial markets. To assess the heterogeneous effects of this transition on financial markets, 22 carbon-sensitive industries in the Chinese market, classified into brown, green, and financial sectors, are analyzed by using the LASSO-VAR-DY model and complex network analysis. The results reveal that spillovers have changed over different stage and gradually shifted from intra-sector spillovers to more complex inter-sector spillovers. Particularly noteworthy is that this inter-sector spillover effect is especially pronounced among industries with close production linkages. Besides, the brown sector consistently acts as a spillover sender, while the financial sector becomes closely interconnected, albeit at a greater risk from the brown sector than from the green sector. These findings highlight the need to consider the spillover effects for maintaining financial stability and constructing investment portfolios.