How does climate policy uncertainty affect financial markets? Evidence from Europe

Marco Tedeschi (), Matteo Foglia, Elie Bouri and Peng-Fei Dai

Economics Letters, 2024, vol. 234, issue C

Abstract: This study analyzes the time-varying effect of climate policy uncertainty (CPU) on the stock market and clean energy indices in the European context. For this purpose, we use the Bayesian time-varying parameter VAR model. The empirical results show that CPU shocks have a significant effect on the financial indexes. Returns on clean energy (crude oil) stocks increase (decrease) in response to heightened climate risk. Moreover, the COVID-19 pandemic is a relevant tipping point in CPU dynamics. These results offer important implications for European investors and policymakers in the context of the European climate-energy crisis.

Keywords: Climate policy uncertainty; Financial markets; Clean energy stock; Crude oil price; Time varying parameter VAR; Impulse response function (search for similar items in EconPapers)
JEL-codes: G10 Q54 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:234:y:2024:i:c:s016517652300469x

DOI: 10.1016/j.econlet.2023.111443

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