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Exploring the unpredictable nature of climate policy uncertainty: An empirical analysis of its impact on commodity futures returns in the United States

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  • Chia‐Hsien Tang
  • Yen‐Hsien Lee
  • Hung‐Chun Liu
  • Guan‐Gzhe Zeng

Abstract

This study offers a nuanced examination of the interplay between climate policy uncertainty (CPU) and three categories of the US commodity futures returns (metals, energy, and soft commodities). By integrating a regression framework with a Markov regime‐switching approach, our results uncover both linear and nonlinear effects of CPU in varying volatility contexts. This comprehensive methodological approach sheds light on CPU's diverse impacts across various types of commodity futures. The findings illustrate CPU's notable influence on metal and energy futures in low‐volatility regime, contrasted with its more pronounced effect on soft commodities during high‐volatility regime. These insights are pivotal for investors strategizing in light of CPU, and underscore the significance of renewable energy in alleviating climate policy uncertainties within commodity markets.

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  • Chia‐Hsien Tang & Yen‐Hsien Lee & Hung‐Chun Liu & Guan‐Gzhe Zeng, 2024. "Exploring the unpredictable nature of climate policy uncertainty: An empirical analysis of its impact on commodity futures returns in the United States," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 44(7), pages 1277-1292, July.
    • Handle: RePEc:wly:jfutmk:v:44:y:2024:i:7:p:1277-1292
    DOI: 10.1002/fut.22510
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