Does climate policy uncertainty affect Chinese stock market volatility?

Zhonglu Chen, Li Zhang and Chen Weng

International Review of Economics & Finance, 2023, vol. 84, issue C, 369-381

Abstract: Global warming forces policymakers to change climate policies to achieve global carbon neutrality targets. Although policy changes and developments affect financial asset price volatility, unpredictable climate policy changes make policy decisions less certain. This study investigates the spillover effects of climate policy uncertainty (CPU) on Chinese stock market volatility in the realized GARCH-MIDAS framework. To capture more information on asset price volatility, we further employ 5-min high-frequency data. The empirical results provide strong evidence to support that our strategy can successfully improve volatility forecasting accuracy. First, in-sample results indicate that CPU has a significant effect on stock price volatility. Second, out-of-sample tests confirm that the extended model that considers both CPU and high-frequency data exhibits the best predictive ability. In addition, various robustness tests strongly demonstrate our main findings. Thus, this paper demonstrates that weather effects exist in the stock market and reminds investors that they should pay more attention to climate policies in the current period of the climate crisis.

Keywords: Climate policy uncertainty; Chinese stock market; Volatility forecast; Realized GARCH-MIDAS (search for similar items in EconPapers)
JEL-codes: C22 C32 C53 G11 G17 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:84:y:2023:i:c:p:369-381

DOI: 10.1016/j.iref.2022.11.030

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