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How does climate policy uncertainty affect financial markets? Evidence from Europe

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  • Tedeschi, Marco
  • Foglia, Matteo
  • Bouri, Elie
  • Dai, Peng-Fei

Abstract

This study analyzes the time-varying effect of climate policy uncertainty (CPU) on the stock market and clean energy indices in the European context. For this purpose, we use the Bayesian time-varying parameter VAR model. The empirical results show that CPU shocks have a significant effect on the financial indexes. Returns on clean energy (crude oil) stocks increase (decrease) in response to heightened climate risk. Moreover, the COVID-19 pandemic is a relevant tipping point in CPU dynamics. These results offer important implications for European investors and policymakers in the context of the European climate-energy crisis.

Suggested Citation

  • Tedeschi, Marco & Foglia, Matteo & Bouri, Elie & Dai, Peng-Fei, 2024. "How does climate policy uncertainty affect financial markets? Evidence from Europe," Economics Letters, Elsevier, vol. 234(C).
    • Handle: RePEc:eee:ecolet:v:234:y:2024:i:c:s016517652300469x
    DOI: 10.1016/j.econlet.2023.111443
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    References listed on IDEAS

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    Cited by:

    1. Zhao, Wanli & Zhai, Xiangyang & Ji, Qiang & Liu, Zhenhua, 2024. "Measuring crisis from climate risk spillovers in European electricity markets," Energy Economics, Elsevier, vol. 134(C).
    2. Liu, Chao & Xu, Jiahui, 2024. "Risk spillover effects of new global energy listed companies from the time-frequency perspective," Energy, Elsevier, vol. 292(C).
    3. Alshammari, Saad & Andriosopoulos, Kostas & Kaabia, Olfa & Mohamed, Kamel Si & Urom, Christian, 2024. "The interplay among corporate bonds, geopolitical risks, equity market, and economic uncertainties," International Review of Financial Analysis, Elsevier, vol. 95(PA).
    4. Rui Dias & Rosa Galvão & Sandra Cruz & Mohammad Irfan & Paulo Alexandre & Sidalina Gonçalves & Nuno Teixeira & Cristina Palma & Liliana Almeida, 2024. "Testing the Diversifying Asset Hypothesis between Clean Energy Stock Indices and Oil Price," International Journal of Energy Economics and Policy, Econjournals, vol. 14(6), pages 295-302, November.
    5. Niu, Hongli & Hu, Wenwen, 2024. "Static and dynamic interdependencies among natural gas, stocks of global major economies and uncertainty," Resources Policy, Elsevier, vol. 94(C).

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    More about this item

    Keywords

    Climate policy uncertainty; Financial markets; Clean energy stock; Crude oil price; Time varying parameter VAR; Impulse response function;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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