Long-Span Multi-Layer Spillovers between Moments of Advanced Equity Markets: The Role of Climate Risks

Matteo Foglia, Vasilios Plakandaras, Rangan Gupta and Qiang Ji ()
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Qiang Ji: Institutes of Science and Development, Chinese Academy of Sciences, Beijing, China; School of Public Policy and Management, University of Chinese Academy of Sciences, Beijing, China

No 202415, Working Papers from University of Pretoria, Department of Economics

Abstract: In this paper, we examine the potential spillovers between returns, volatility, skewness and kurtosis of developed stock markets under the lenses of rare disaster events, proxied by climate risks. The goal of this study is to depict the transmission mechanism of rare disaster events involving moments within and between advanced equity markets. In doing so, we provide estimates of the aforementioned moments based on model-implied distributions of stock returns, derived from the quantile autoregressive distributed lag mixed-frequency data sampling (QADL-MIDAS) method, using a long span of data. Our research framework includes the G7 and Switzerland over the period December 1924 to February 2023, where we apply a multilayer approach to spillovers, adding the effect of climate risk to our analysis. Our empirical findings are as follows: firstly, spillovers are significant within- and across stock markets for each of the four moments. Secondly, based on a nonparametric causality-in-quantiles approach, changes in temperature anomalies, have the predictive power to shape the entire conditional distribution of various metrics of spillover involving single- and multiple-layers of returns and risks layers. In sum, we show that the multi-layer approach offers a comprehensive and nuanced view of how stock market-related information is transmitted across the stock markets of advanced economies, carrying implications for investors and policymakers.

Keywords: Returns and risk spillovers; advanced equity markets; multi-layer spillover approach; nonparametric causality-in-quantiles method; climate risks; predictability (search for similar items in EconPapers)
JEL-codes: C22 C32 C53 G15 Q54 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2024-04
New Economics Papers: this item is included in nep-ene, nep-env and nep-fmk
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Journal Article: Long-span multi-layer spillovers between moments of advanced equity markets: The role of climate risks (2025)
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