The asymmetric effects of climate risk on higher-moment connectedness among carbon, energy and metals markets

Yuqin Zhou, Shan Wu*, Zhenhua Liu, Lavinia Rognone

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

10 Citations (Scopus)

Abstract

Climate change affects price fluctuations in the carbon, energy and metals markets through physical and transition risks. Climate physical risk is mainly caused by extreme weather, natural disasters and other events caused by climate change, whereas climate transition risk mainly results from the gradual switchover to a low-carbon economy. Given that the connectedness between financial markets may be affected by various factors such as extreme events and economic transformation, understanding the different roles of climate physical risk and transition risk on the higher-moment connectedness across markets has important implications for investors to construct portfolios and regulators to establish regulation system. Here, using the GJRSK model, time-frequency connectedness framework and quantile-on-quantile method, we show asymmetric effects of climate risk on connectedness among carbon, energy and metals markets, with higher impacts of climate physical risk on upward risk spillovers, and greater effects of climate transition risk on the downside risk of kurtosis connectedness.

Original languageEnglish
Article number7157
JournalNature Communications
Volume14
Issue number1
DOIs
Publication statusPublished - Dec 2023
Externally publishedYes

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