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Attention to climate events and carbon price volatility

Author

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  • Gong, Xue
  • Ji, Shidong
  • Zhang, Yaojie

Abstract

This paper investigates the impact of climate change on carbon price volatility. We propose a novel climate indicator that captures investor attention to climate events. Our results show that attention to Drought and Severe storms has significant predictive power for carbon price volatility, both in-sample and out-of-sample. Moreover, we find that the predictive strength of these climate indicators is time-varying and becomes more pronounced during economic recessions. Robustness checks validate these findings. This research offers new insights into the risk factors influencing the carbon market and contributes to the broader understanding of dynamics shaping global low-carbon development.

Suggested Citation

  • Gong, Xue & Ji, Shidong & Zhang, Yaojie, 2025. "Attention to climate events and carbon price volatility," Finance Research Letters, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:finlet:v:79:y:2025:i:c:s1544612325005161
    DOI: 10.1016/j.frl.2025.107253
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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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