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Climate, geopolitical, and energy market risk interconnectedness: Evidence from a new climate risk index

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  • Gu, Qinen
  • Li, Shaofang
  • Tian, Sihua
  • Wang, Yuyouting

Abstract

Using meteorological monitoring data from eight climate disasters across the globe along with financial data from the WTI and BNG energy markets, this study employs the fixed-base extreme difference entropy method to construct a climate risk index (CRI) and investigates the relationship between climate risk, geopolitical risk (GPR), and energy market risk based on the mixed-frequency VAR (MF-VAR) method. The empirical results show that an increase in both GPR and CRI is related to an increase in energy market risk, and that a higher CRI is associated with greater GPR. Moreover, the positive relationship between CRI scores and energy market risk after the Paris Agreement has grown stronger.

Suggested Citation

  • Gu, Qinen & Li, Shaofang & Tian, Sihua & Wang, Yuyouting, 2023. "Climate, geopolitical, and energy market risk interconnectedness: Evidence from a new climate risk index," Finance Research Letters, Elsevier, vol. 58(PB).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pb:s154461232300764x
    DOI: 10.1016/j.frl.2023.104392
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    Cited by:

    1. Hu, Zinan & Borjigin, Sumuya, 2024. "The amplifying role of geopolitical Risks, economic policy Uncertainty, and climate risks on Energy-Stock market volatility spillover across economic cycles," The North American Journal of Economics and Finance, Elsevier, vol. 71(C).
    2. Gu, Qinen & Li, Shaofang & Tian, Sihua & Wang, Yuyouting, 2024. "Impact of climate risk on energy market risk spillover: Evidence from dynamic heterogeneous network analysis," Energy Economics, Elsevier, vol. 137(C).
    3. Hela B Hamida, 2024. "Cross-domain dynamics: How geopolitical and climate policy uncertainties shape tourism patterns in the United States," Tourism Economics, , vol. 30(7), pages 1835-1856, November.
    4. Dong, Kangyin & Yang, Senmiao & Wang, Jianda & Nepal, Rabindra & Jamasb, Tooraj, 2024. "Does Geopolitical Risk Accelerate Climate Vulnerability? New Evidence from the European Green Deal," Working Papers 15-2024, Copenhagen Business School, Department of Economics.
    5. Banerjee, Ameet Kumar & Sensoy, Ahmet & Rahman, Molla Ramizur & Palma, Alessia, 2024. "Commonality in volatility among green, brown, and sustainable energy indices," Finance Research Letters, Elsevier, vol. 64(C).
    6. Wang, Pei & Xue, Weixian & Wang, Zhuan, 2024. "Fog and haze control and enterprise green total factor productivity - evidence from China," Finance Research Letters, Elsevier, vol. 65(C).
    7. Rajendran, Hiridik & Kayal, Parthajit & Maiti, Moinak, 2024. "Is the U.S. energy independence and Security Act of 2022 associated with stock market volatility?," Utilities Policy, Elsevier, vol. 90(C).
    8. Christian Oliver Ewald & Chuyao Huang & Yuyu Ren, 2024. "On the Effects of Physical Climate Risks on the Chinese Energy Sector," JRFM, MDPI, vol. 17(10), pages 1-15, October.
    9. Liu, Yuying, 2024. "Climate risk perception, female directors and greenwashing," Finance Research Letters, Elsevier, vol. 70(C).

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    More about this item

    Keywords

    Climate risk; Geopolitical risk; Energy markets risk; MF-VAR;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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