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Can climate risks affect cryptocurrency volatility? Fresh evidence from a GARCH-MIDAS-X model

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  • Yufei Xia
  • Yating Fu
  • Ziyi Zong
  • Qiong Zheng

Abstract

Significant climate change has aroused public attention and prompted concentrated research on its impact on the financial market. Using the index of cryptocurrency environmental attention as a proxy for climate risk, this paper investigates the impact of climate risks on cryptocurrency volatility using GARCH-MIDAS (GM)-based models. The in- and out-of-sample analyses demonstrate that climate risks can negatively affect cryptocurrency volatility. The CVI index is positively related to short-term volatility, and the inclusion of it can increase the goodness-of-fit of GM-based models. Moreover, we find that GM-X-student’s t model achieves the best out-of-sample forecasting capability and always enters the model confidence set. These conclusions remain robust for alternative data frequency, green cryptocurrencies, and train-test splits.

Suggested Citation

  • Yufei Xia & Yating Fu & Ziyi Zong & Qiong Zheng, 2025. "Can climate risks affect cryptocurrency volatility? Fresh evidence from a GARCH-MIDAS-X model," Applied Economics Letters, Taylor & Francis Journals, vol. 32(6), pages 803-807, March.
    • Handle: RePEc:taf:apeclt:v:32:y:2025:i:6:p:803-807
    DOI: 10.1080/13504851.2023.2289411
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