Common volatility shocks driven by the global carbon transition

Susana Campos-Martins and David Hendry

Journal of Econometrics, 2024, vol. 239, issue 1

Abstract: We propose a novel approach to measure the global effects of climate change news on financial markets. For that purpose, we first calculate the global common volatility of the oil and gas industry. Then we project it on climate-related shocks constructed using text-based proxies of climate change news. We show that rising concerns about the energy transition make oil and gas share prices move at the global scale, controlling for shocks to the oil price, US and world stock markets. Despite the clear exposure of oil and gas companies to carbon transition risk, not all geoclimatic shocks are alike. The signs and magnitudes of the impacts differ across climate risk drivers. Regarding sentiment, climate change news tends to create turmoil only when the news is negative. Moreover, the adverse effect is amplified by oil price movements but weakened by stock market shocks. Finally, our findings point out climate news materialises when it reaches the global scale, supporting the relevance of modelling geoclimatic volatility.

Keywords: Geoclimatic volatility shocks; Global common volatility; Multiplicative factor models; Climate transition risk; Oil and gas industry (search for similar items in EconPapers)
JEL-codes: C31 C32 C38 C58 G15 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304407623001665
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:239:y:2024:i:1:s0304407623001665

DOI: 10.1016/j.jeconom.2023.05.008

Access Statistics for this article

Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson

More articles in Journal of Econometrics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().