Time-frequency tail risk spillover between ESG climate and high-carbon assets: The role of economic policy uncertainty and financial Stress

Zishan Huang, Huiming Zhu, Xi Deng and Tian Zeng

Finance Research Letters, 2024, vol. 67, issue PA

Abstract: This study proposes the multiscale R2 decomposed connectedness approach to investigate the time-frequency contemporaneous and lagged risk spillover between ESG climate and high-carbon assets. We further track the time-varying predictive power of economic policy uncertainty (EPU) and financial stress (FSI) for risk contagion. In the risk connectedness between ESG and high-carbon assets, contemporaneous spillovers dominate in the short term, while lagged spillovers increase over longer timescales. Furthermore, EPU has better predictive power for long-term risk spillover, while FSI excels in forecasting short-term risk spillover. Both exhibit superior performance in predicting contemporaneous risk contagion.

Keywords: ESG climate assets; High-carbon assets; Contemporaneous and lagged risk spillover; Economic policy uncertainty; Financial stress; Time-frequency (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:67:y:2024:i:pa:s1544612324008961

DOI: 10.1016/j.frl.2024.105866

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