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Greenhouse gas emissions and the stability of equity markets

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  • Aharon, David Y.
  • Baig, Ahmed S.
  • Jacoby, Gady
  • Wu, Zhenyu

Abstract

We test the impact of GHG emissions on equity markets’ volatility. Our results confirm that CO2 and other greenhouse gases emissions such as agricultural nitrous oxide, and methane emissions are associated with increased stock market volatility. This relationship holds across different measures of volatility, emissions, and specifications using nearly 30 years’ worth of index-level data from stock exchanges across 50 countries. These findings lend support to the notion that carbon risk is priced into financial markets, and that green finance could promote more stable global equity markets in the future and thereby foster a more sustainable economic system.

Suggested Citation

  • Aharon, David Y. & Baig, Ahmed S. & Jacoby, Gady & Wu, Zhenyu, 2024. "Greenhouse gas emissions and the stability of equity markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 92(C).
    • Handle: RePEc:eee:intfin:v:92:y:2024:i:c:s1042443124000180
    DOI: 10.1016/j.intfin.2024.101952
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    More about this item

    Keywords

    Carbon risk; Climate; Stock markets; Volatility; Emissions; Greenhouse gases;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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