Attention to climate events and carbon price volatility

Xue Gong, Shidong Ji and Yaojie Zhang

Finance Research Letters, 2025, vol. 79, issue C

Abstract: This paper investigates the impact of climate change on carbon price volatility. We propose a novel climate indicator that captures investor attention to climate events. Our results show that attention to Drought and Severe storms has significant predictive power for carbon price volatility, both in-sample and out-of-sample. Moreover, we find that the predictive strength of these climate indicators is time-varying and becomes more pronounced during economic recessions. Robustness checks validate these findings. This research offers new insights into the risk factors influencing the carbon market and contributes to the broader understanding of dynamics shaping global low-carbon development.

Keywords: Climate risk; Volatility prediction; Carbon risk; Investor attention; Autoregressive distribution lag model (search for similar items in EconPapers)
JEL-codes: C22 G17 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:79:y:2025:i:c:s1544612325005161

DOI: 10.1016/j.frl.2025.107253

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