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Forecasting volatility in commodity markets with climate risk

Author

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  • Guo, Yangli
  • Peng, Pei
  • Zhou, Ling
  • Tang, Yusui

Abstract

This study introduces a climate change concern index to quantify climate risk and assess its impact on commodity futures volatility, addressing a key gap in the literature. Compared to established risk measures, the index significantly improves volatility forecasts. Models using the index also outperform traditional ones in economic value, offering insights for investors and policymakers in managing climate-related financial risks. These findings underscore the importance of climate risk in financial markets, enhancing forecasts and guiding economic decisions.

Suggested Citation

  • Guo, Yangli & Peng, Pei & Zhou, Ling & Tang, Yusui, 2025. "Forecasting volatility in commodity markets with climate risk," Finance Research Letters, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:finlet:v:78:y:2025:i:c:s1544612325003575
    DOI: 10.1016/j.frl.2025.107094
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