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Soft commodity volatility prediction: A perspective of climate risk concerns

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  • Liu, Yao
  • Yao, Zhigang

Abstract

This research primarily examines how effective physical and transitional climate risk concerns are in predicting the volatility of soft commodities. The findings indicate that incorporating physical climate risk concerns plays a crucial role in accurately forecasting soft commodity volatility. In contrast, transitional climate risk concerns exhibit weaker predictive power compared to physical climate risk concerns. Moreover, combining physical climate risk concerns with regime-switching mechanisms significantly improves the predictive accuracy for soft commodity volatility. The findings underscore the importance of physical climate risk and the combination of climate risk concerns with regime-switching can improve the accuracy of volatility forecasts.

Suggested Citation

  • Liu, Yao & Yao, Zhigang, 2025. "Soft commodity volatility prediction: A perspective of climate risk concerns," Finance Research Letters, Elsevier, vol. 85(PC).
    • Handle: RePEc:eee:finlet:v:85:y:2025:i:pc:s1544612325013078
    DOI: 10.1016/j.frl.2025.108049
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    References listed on IDEAS

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