Does climate policy uncertainty move with stock markets? Evidence from advanced economies with the best climate change performance

Bezgin Muge Saglam () and Gungor Selim ()
Additional contact information
Bezgin Muge Saglam: Karamanoglu Mehmetbey University, Türkiye
Gungor Selim: Tokat Gaziosmanpasa University, Türkiye

Financial Internet Quarterly (formerly e-Finanse), 2025, vol. 21, issue 3, 62-76

Abstract: This study aims to understand how climate policy uncertainty affects investor behavior and whether it moves with stock markets in advanced economies. Accordingly, we examine data for January 2000-2023 for the stock market indices of Sweden, the United Kingdom, Germany, Norway, the Netherlands, and Finland, which have a ‘good’ CCP rating according to the MSCI classification and the climate policy uncertainty index. Furthermore, we apply two main methodologies: Wavelet Coherence Analysis and the Breitung and Candelon Frequency Causality Test. WCA shows the time-based co-movements between CPU and stock market indices and their effects on each other. We also consider the causality test to examine causality at various frequencies. The WCA results reveal a relationship between the CPU index and all markets except the Norwegian market. As a result of the causality, we conclude that there is a strong causality between the CPU index and the Finnish and Swedish stock markets in the short run, a strong causality between the CPU index and the Dutch market in the long run, and a weak causality between the CPU index and the German stock market in the short, medium and long run. Investors can develop strategies to mitigate risks and hedge volatility by monitoring exogenous factors such as CPU. Strategies such as quick-action stop-loss orders are recommended, especially for short-term CPU- affected markets such as the Swedish and Finnish stock markets.

Keywords: Climate Policy Uncertainty; Stock Market; Wavelet Coherence; Frequency Causality (search for similar items in EconPapers)
JEL-codes: G11 G32 Q54 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.2478/fiqf-2025-0019 (text/html)

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:vrs:finiqu:v:21:y:2025:i:3:p:62-76:n:1005

DOI: 10.2478/fiqf-2025-0019

Access Statistics for this article

Financial Internet Quarterly (formerly e-Finanse) is currently edited by Tomasz Skica

More articles in Financial Internet Quarterly (formerly e-Finanse) from Sciendo
Bibliographic data for series maintained by Peter Golla ().