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Time-frequency tail risk spillover between ESG climate and high-carbon assets: The role of economic policy uncertainty and financial Stress

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  • Huang, Zishan
  • Zhu, Huiming
  • Deng, Xi
  • Zeng, Tian

Abstract

This study proposes the multiscale R2 decomposed connectedness approach to investigate the time-frequency contemporaneous and lagged risk spillover between ESG climate and high-carbon assets. We further track the time-varying predictive power of economic policy uncertainty (EPU) and financial stress (FSI) for risk contagion. In the risk connectedness between ESG and high-carbon assets, contemporaneous spillovers dominate in the short term, while lagged spillovers increase over longer timescales. Furthermore, EPU has better predictive power for long-term risk spillover, while FSI excels in forecasting short-term risk spillover. Both exhibit superior performance in predicting contemporaneous risk contagion.

Suggested Citation

  • Huang, Zishan & Zhu, Huiming & Deng, Xi & Zeng, Tian, 2024. "Time-frequency tail risk spillover between ESG climate and high-carbon assets: The role of economic policy uncertainty and financial Stress," Finance Research Letters, Elsevier, vol. 67(PA).
    • Handle: RePEc:eee:finlet:v:67:y:2024:i:pa:s1544612324008961
    DOI: 10.1016/j.frl.2024.105866
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