Global climate policy uncertainty and financial markets

Qiang Ji, Dandan Ma, Pengxiang Zhai, Ying Fan and Dayong Zhang

Journal of International Financial Markets, Institutions and Money, 2024, vol. 95, issue C

Abstract: This paper aims to examine whether and to what extent global climate policy uncertainty can impact financial markets. We first construct a novel index of global climate policy uncertainty by performing textual analysis of two million news articles over the period 2013–2021. We then use a time–frequency spillover and network analysis to show how the impacts of shocks from global climate policy uncertainty on five key international financial markets evolve over time and to characterize the underlying risk transmission channels. We find significant spillovers from global climate policy uncertainty to the financial markets, while the impacts of global climate policy uncertainty are heterogenous across financial markets and more profound in the bond market. Our results also show that spillovers from global climate policy uncertainty to the financial markets are mostly concentrated in the short term, underscoring the need for investors to adjust strategies and regulators to implement measures mitigating short-term market reactions to climate policy shocks.

Keywords: Global climate policy uncertainty (GCPU); Spillovers; Time and frequency domains; Financial markets; Network analysis (search for similar items in EconPapers)
JEL-codes: G10 G15 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:95:y:2024:i:c:s1042443124001136

DOI: 10.1016/j.intfin.2024.102047

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