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Does Climate Risk Amplify Oil Market Volatility?

Author

Listed:
  • Kazeem Isah
  • Adedapo Odebode
  • Oluwafemi Ogunjemilua

    (School of Accounting, Economics and Finance, University of KwaZulu-Natal (UKZN), South Africa)

Abstract

Motivated by the increasing evidence of oil price-related transition risk from climate change, we employ the classic GARCH (1,1) and its extended variant (GARCH-X) to identify the degree of oil market volatility that is due to climate risk. We find that climate risk increases the persistence of volatility in the oil markets.

Suggested Citation

  • Kazeem Isah & Adedapo Odebode & Oluwafemi Ogunjemilua, 2023. "Does Climate Risk Amplify Oil Market Volatility?," Energy RESEARCH LETTERS, Asia-Pacific Applied Economics Association, vol. 4(2), pages 1-5.
    • Handle: RePEc:ayb:jrnerl:77
    DOI: 2023/06/13
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    References listed on IDEAS

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    1. Robert S. Pindyck, 2013. "Climate Change Policy: What Do the Models Tell Us?," Journal of Economic Literature, American Economic Association, vol. 51(3), pages 860-872, September.
    2. Cristiana Tudor & Andrei Anghel, 2021. "The Financialization of Crude Oil Markets and Its Impact on Market Efficiency: Evidence from the Predictive Ability and Performance of Technical Trading Strategies," Energies, MDPI, vol. 14(15), pages 1-19, July.
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    Cited by:

    1. Afees A. Salisu & Yinka S. Hammed & Ibrahim Ngananga Ouattara, 2023. "Climate Change, Technology Shocks and the US Equity Real Estate Investment Trusts (REITs)," Sustainability, MDPI, vol. 15(19), pages 1-22, October.
    2. Tumala, Mohammed M. & Salisu, Afees & Nmadu, Yaaba B., 2023. "Climate change and fossil fuel prices: A GARCH-MIDAS analysis," Energy Economics, Elsevier, vol. 124(C).
    3. Jiang, Wei & Tang, Wanqing & Li, Jianfeng & Wei, Xiaokun, 2025. "Climate risk and renewable energy market volatility: Machine learning approach," Research in International Business and Finance, Elsevier, vol. 76(C).
    4. Wang, Jun-Zhuo & Narayan, Paresh Kumar & Gunadi, Iman & Hermawan, Danny, 2025. "Climate change and financial risk: Is there a role for central banks?," Energy Economics, Elsevier, vol. 144(C).

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    Keywords

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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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