Forecasting Stock Returns Volatility of the G7 Over Centuries: The Role of Climate Risks

Elie Bouri (), Rangan Gupta, Asingamaanda Liphadzi () and Christian Pierdzioch
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Elie Bouri: School of Business, Lebanese American University, Lebanon
Asingamaanda Liphadzi: Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa

No 202424, Working Papers from University of Pretoria, Department of Economics

Abstract: We analyze whether changes in temperature anomalies, and its second, third, and fourth moments, carry valuable information in forecasting historical stock returns volatility of Canada, France, Germany, Italy, Japan, the United Kingdom (UK), and the United States (US), i.e., the G7 countries, after controlling for leverage, skewness and (excess) kurtosis of stock price fluctuations. Using centuries of monthly data, covering the period 1915-2024 for Canada and Italy, 1898-2024 for France, 1870-2024 for Germany, 1914-2024 for Japan, 1693-2024 for the UK, and 1791-2024 for the US, the results show that stock market moments matter more than climate risks for accurately forecasting stock returns volatility. Extended analyses confirm that climate risks are already captured by the moments of stock returns. We discuss the implications of our findings for investment decisions and economic policy.

Keywords: Stock market; Volatility; Forecasting; Moments; Climate risks; G7 countries (search for similar items in EconPapers)
JEL-codes: C22 C32 C53 G10 G17 Q54 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2024-06
New Economics Papers: this item is included in nep-env, nep-eur, nep-fmk and nep-his
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:202424

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