Forecasting the effect of extreme sea-level rise on financial market risk

Laura Garcia-Jorcano and Lidia Sanchis-Marco

International Review of Economics & Finance, 2024, vol. 93, issue PB, 1-27

Abstract: The demand for modeling climate change and its effect on various affected financial and economic sectors is increasing. Sea-level rise is one of the major risks of climate change. Based on the global and regional mean sea level rise (MSLR), we propose extreme sea-level value at rise (ExSLVaR) and extreme sea-level expected rise (ExSLER) measures to forecast extreme MSLR calculated for the 10-day time series from eight seas/oceans from December 1992 to October 2020. Furthermore, we analyze the connection between different regional extreme MSLR measures (US, Europe, and Australia), used as proxies of climate risk, and financial market risk in several sectors. The main evidence shows that the different regional extreme MSLR measures forecast opposite effects, positive and negative, on financial and economic sectors over time, showing climate risk premium and cost, respectively. Specifically, the insurance sector presents the highest risk premium, and the oil and gas sector the highest risk cost. These measures are relevant for policymakers, regulators, and investors seeking strategies to mitigate future physical and transition risk while accounting for such risk in policies, regulations, and portfolio allocation.

Keywords: Sea-level rise; Climate change; Extreme value theory; Forecasting; Financial market risk (search for similar items in EconPapers)
JEL-codes: C22 C52 G17 Q54 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056024002442
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:93:y:2024:i:pb:p:1-27

DOI: 10.1016/j.iref.2024.03.079

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().