IDEAS home Printed from https://ideas.repec.org/a/eee/intfin/v101y2025ics1042443125000253.html
   My bibliography  Save this article

Climate risk and predictability of global stock market volatility

Author

Listed:
  • Zhou, Mingtao
  • Ma, Yong

Abstract

This study examines the informative role of climate risk in improving the predictability of global stock market volatility. By aggregating four climate risk proxies of Faccini et al. (2023), relating to physical climate impacts and climate mitigation actions, we reveal that aggregate climate risk is a significantly positive predictor of stock volatility across 32 international markets. This predictability persists in out-of-sample tests and cannot be subsumed by relevant economic and financial uncertainty measures. However, the predictive power of aggregate climate risk exhibits noteworthy variations over time and across regions; it weakens when economic conditions deteriorate, whereas it strengthens following the Paris Agreement and in regions with advanced financial development, high energy intensity, and strong climate change readiness. Moreover, by dissecting the multiple facets of climate risk, we show that physical risks, especially natural disasters, have much stronger predictability than transition risks. These predictive insights offer valuable guidance for risk management, policy planning, and the adjustment of asset pricing models in response to the evolving global climate risk landscape.

Suggested Citation

  • Zhou, Mingtao & Ma, Yong, 2025. "Climate risk and predictability of global stock market volatility," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 101(C).
    • Handle: RePEc:eee:intfin:v:101:y:2025:i:c:s1042443125000253
    DOI: 10.1016/j.intfin.2025.102135
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1042443125000253
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.intfin.2025.102135?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Aggregate climate risk; Physical risk; Transition risk; Volatility predictability; International evidence; Temporal and regional heterogeneity;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:intfin:v:101:y:2025:i:c:s1042443125000253. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/intfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.