Study on the time-frequency risk spillover network of “carbon-energy-stock” system under climate risk shock

A network perspective is applied in this study to explore the time-frequency connectedness characteristics and key contagion paths of climate physical risks (PRI) and climate transition risks (TRI) with the “carbon-energy-stock” market risks in China. Considering the heterogeneity of data distribution in various markets and the complexity of multi-market coupling, an ARMA-GARCH model is constructed in this study. It incorporates the BK spillover index to investigate the static risk spillover network and the dynamic risk connectedness of the “carbon-energy-stock” system under climate risk shocks. The results indicate that: (1) The long-term transition risk exhibits significant spillover effects within the “carbon-energy-stock” system. This shock initially impacts the energy and carbon markets, and then spreads to the stock market subsequently. (2) In most cases, the level of risk spillovers under the monthly frequency is much larger than that under the weekly frequency. However, the weekly frequency market can be more sensitive under the impact of sudden external events, so investors need to be aware of the extreme peak phenomena in risk spillovers. (3) The stock market is the most active in the entire risk spillover network, especially the financial (FI) and information technology (IT) sectors, which act as important “intermediaries” in the main risk transmission paths. In contrast, the risk connectedness between nascent carbon markets and other markets exhibits an overall weaker profile.