Industry return volatility and spillover effects in stock market under climate risk perception

Yong Li, Xingyi Wang, Tong Niu and Janice Wang

Applied Economics, 2025, vol. 57, issue 55, 9426-9443

Abstract: Utilizing alternative dimension reduction methods, this study constructs three Climate Risk Perception Indices (CRPIs) to quantify the impact of investor climate change sentiment on industry return volatility in the Chinese stock market. There are several findings in this study including (1) the CRPIs effectively capture the trend of climate change in China over the past decade. (2) The investor’s attention to climate change positively influences short-term stock market returns, exhibiting seasonal characteristics and industry heterogeneity. (3) The attention serves as an information sender for stocks in Telecommunication, Oil & Petrochemicals, and Environmental Protection. (4) The total spillover effect among climate-sensitive industries is significantly higher during extreme climate events. These conclusions provide empirical evidence for the stock market to respond effectively to climate risks.

Date: 2025
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DOI: 10.1080/00036846.2024.2418435

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