Financial markets and environmental risks: unveiling the impact of climate uncertainty

Shoaib Ali, Xu Xiaoyang, Samar S. Alharbi and Muhammad Shahid Rasheed

Research in International Business and Finance, 2025, vol. 78, issue C

Abstract: This paper examines the co-movement between Chinese climate policy uncertainty (CPU) and Twitter-based Chinese climate uncertainty (CU) on the eleven sectors of the Chinese equity market, utilizing monthly data from December 2011 to January 2023. To this end, we employ a wavelet-based analysis, which enables the investigation of bivariate relationships in time and frequency domains. The wavelet coherence plot indicates that the influence of CPU on equity sectors is relatively limited and largely insignificant. We also observe a substantial positive correlation between CU and the equity sector, particularly in the medium term (48 months), confirming the asymmetric relationship. Moreover, our results confirm heterogeneous market responses to different climate risks. The findings support the hedging and safe-haven characteristics of the equity sector with regard to climate risk. Finally, these outcomes have implications for policymakers and investors seeking to enhance the market stability and performance of their portfolios. Therefore, investors should consider including Chinese stocks in their portfolios to mitigate climate risk.

Keywords: Climate risk; Chinese equity sector; wavelet analysis; portfolio (search for similar items in EconPapers)
JEL-codes: C40 E32 F30 G15 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:78:y:2025:i:c:s0275531925002545

DOI: 10.1016/j.ribaf.2025.102998

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