Evidence for price discovery between carbon emission and equity markets : evidence from time and frequency domains

Abstract

This study examines the dynamic relationship between the carbon emissions market and stock markets in emerging European countries (the Czech Republic, Greece, Hungary, and Poland). We employ the frequency-domain causality test developed by Breitung and Candelon (2006) to identify short- and long-term causality relationships among the variables. Additionally, a rolling-window frequency-domain causality test is employed to capture the time-varying nature of the relationship between the carbon and stock markets. The empirical results reveal a primary causal relationship running from the stock market to the carbon market, with the intensity of this causality increasing during periods of market turbulence, such as the global financial crisis, COVID-19, and the Russia–Ukraine conflict. This suggests that equity markets may serve as early signals of carbon prices, particularly during periods of market stress. Such insights could be particularly valuable for central banks when calibrating their respective monetary policies. © 2026 Borsa İstanbul Anonim Şirketi.