Forecasting volatility in commodity markets with climate risk

Yangli Guo, Pei Peng, Ling Zhou and Yusui Tang

Finance Research Letters, 2025, vol. 78, issue C

Abstract: This study introduces a climate change concern index to quantify climate risk and assess its impact on commodity futures volatility, addressing a key gap in the literature. Compared to established risk measures, the index significantly improves volatility forecasts. Models using the index also outperform traditional ones in economic value, offering insights for investors and policymakers in managing climate-related financial risks. These findings underscore the importance of climate risk in financial markets, enhancing forecasts and guiding economic decisions.

Keywords: Climate risk; Commodity futures volatility; Forecasting (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:78:y:2025:i:c:s1544612325003575

DOI: 10.1016/j.frl.2025.107094

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