Do climate risks matter for intersectoral systemic risk spillovers? Evidence from China

Xin Hu and Bo Zhu

Finance Research Letters, 2025, vol. 75, issue C

Abstract: This study examines how climate physical risk (CPR) and climate transition risk (CTR) influence systemic risk spillovers across China's economic and financial sectors. Using a quantile connectedness approach, we estimate the intersectoral risk spillovers. The results show that CTR significantly exacerbates these spillovers, particularly in energy-intensive sectors, while CPR's impact is less pronounced. Moreover, we uncover an interaction between CPR and CTR and show that CTR's effects intensify during periods of heightened economic policy uncertainty. These findings reveal climate risks' critical threat to economic and financial stability and suggest developing prudential regulations to mitigate climate-induced systemic risk.

Keywords: Climate physical risk; Climate transition risk; Intersectoral systemic risk spillovers; Quantile connectedness approach (search for similar items in EconPapers)
JEL-codes: C58 G10 G32 Q54 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:75:y:2025:i:c:s1544612325001382

DOI: 10.1016/j.frl.2025.106873

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