IDEAS home Printed from https://ideas.repec.org/a/eee/phsmap/v666y2025ics0378437125001827.html

Does climate risk drive digital asset returns?

Author

Listed:
  • Abdullah, Mohammad
  • Adeabah, David
  • Lee, Chi-Chuan
  • Abakah, Emmanuel Joel Aikins
  • Bhuiyan, Rubaiyat Ahsan

Abstract

This research employs quantile-on-quantile regression and the quantile coherency method to examine the asymmetric effects of various climate-related risks (physical and transition) across different states (from high to low) on digital assets, including the returns from cryptocurrencies, non-fungible tokens (NFTs), and decentralized finance (DeFi). The findings indicate that climate-related risks negatively affect the returns of cryptocurrencies, NFTs, and DeFi assets in the upper quantiles, meaning that these risks reduce returns. Conversely, in the lower quantiles their impact is inverse, highlighting the asymmetric influence of climate-related risks on cryptocurrencies, NFTs, and the DeFi market.

Suggested Citation

  • Abdullah, Mohammad & Adeabah, David & Lee, Chi-Chuan & Abakah, Emmanuel Joel Aikins & Bhuiyan, Rubaiyat Ahsan, 2025. "Does climate risk drive digital asset returns?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 666(C).
    • Handle: RePEc:eee:phsmap:v:666:y:2025:i:c:s0378437125001827
    DOI: 10.1016/j.physa.2025.130530
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378437125001827
    Download Restriction: Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000
    File URL: https://libkey.io/10.1016/j.physa.2025.130530?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

    for a different version of it.

    References listed on IDEAS

    as
    1. Robert F Engle & Stefano Giglio & Bryan Kelly & Heebum Lee & Johannes Stroebel, 2020. "Hedging Climate Change News," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1184-1216.
    2. Abakah, Emmanuel Joel Aikins & Adeabah, David & Tiwari, Aviral Kumar & Abdullah, Mohammad, 2023. "Effect of Russia–Ukraine war sentiment on blockchain and FinTech stocks," International Review of Financial Analysis, Elsevier, vol. 90(C).
    3. Cepni, Oguzhan & Demirer, Riza & Rognone, Lavinia, 2022. "Hedging climate risks with green assets," Economics Letters, Elsevier, vol. 212(C).
    4. Giovanna Bua & Daniel Kapp & Federico Ramella & Lavinia Rognone, 2024. "Transition versus physical climate risk pricing in European financial markets: a text-based approach," The European Journal of Finance, Taylor & Francis Journals, vol. 30(17), pages 2076-2110, November.
    5. Corbet, Shaen & Lucey, Brian & Yarovaya, Larisa, 2021. "Bitcoin-energy markets interrelationships - New evidence," Resources Policy, Elsevier, vol. 70(C).
    6. Karydas, Christos & Xepapadeas, Anastasios, 2022. "Climate change financial risks: Implications for asset pricing and interest rates," Journal of Financial Stability, Elsevier, vol. 63(C).
    7. Santi, Caterina, 2023. "Investor climate sentiment and financial markets," International Review of Financial Analysis, Elsevier, vol. 86(C).
    8. Lee, Chi-Chuan & Li, Mingyue & Li, Xinghao & Song, Hepeng, 2025. "More green digital finance with less energy poverty? The key role of climate risk," Energy Economics, Elsevier, vol. 141(C).
    9. Yuqin Zhou & Shan Wu & Zhenhua Liu & Lavinia Rognone, 2023. "The asymmetric effects of climate risk on higher-moment connectedness among carbon, energy and metals markets," Nature Communications, Nature, vol. 14(1), pages 1-16, December.
    10. Baur, Dirk G. & Oll, Josua, 2022. "Bitcoin investments and climate change: A financial and carbon intensity perspective," Finance Research Letters, Elsevier, vol. 47(PA).
    11. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-836, July.
    12. Gupta, Rangan & Pierdzioch, Christian, 2022. "Climate risks and forecastability of the realized volatility of gold and other metal prices," Resources Policy, Elsevier, vol. 77(C).
    13. Goodell, John W. & Nammouri, Hela & Saâdaoui, Foued & Ben Jabeur, Sami, 2023. "Carbon allowances amid climate change concerns: Fresh insights from wavelet multiscale analysis," Finance Research Letters, Elsevier, vol. 55(PA).
    14. Lee, Chi-Chuan & Li, Yong-Yi, 2024. "Does environmental policy matter for renewable energy production and economic activity? Evidence from Granger causality in quantiles," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 225-237.
    15. Sarkodie, Samuel Asumadu & Ahmed, Maruf Yakubu & Leirvik, Thomas, 2022. "Trade volume affects bitcoin energy consumption and carbon footprint," Finance Research Letters, Elsevier, vol. 48(C).
    16. Lee, Chi-Chuan & Lee, Chien-Chiang, 2023. "International spillovers of U.S. monetary uncertainty and equity market volatility to China’s stock markets," Journal of Asian Economics, Elsevier, vol. 84(C).
    17. Yizhi Wang & Brian Lucey & Samuel Alexandre Vigne & Larisa Yarovaya, 2022. "An index of cryptocurrency environmental attention (ICEA)," China Finance Review International, Emerald Group Publishing Limited, vol. 12(3), pages 378-414, January.
    18. Arfaoui, Nadia & Naeem, Muhammad Abubakr & Maherzi, Teja & Kayani, Umar Nawaz, 2024. "Can green investment funds hedge climate risk?," Finance Research Letters, Elsevier, vol. 60(C).
    19. Jana, Rabin K. & Ghosh, Indranil & Das, Debojyoti & Dutta, Anupam, 2021. "Determinants of electronic waste generation in Bitcoin network: Evidence from the machine learning approach," Technological Forecasting and Social Change, Elsevier, vol. 173(C).
    20. Karmakar, Sayar & Gupta, Rangan & Cepni, Oguzhan & Rognone, Lavinia, 2023. "Climate risks and predictability of the trading volume of gold: Evidence from an INGARCH model," Resources Policy, Elsevier, vol. 82(C).
    21. He, Mengxi & Zhang, Yaojie, 2022. "Climate policy uncertainty and the stock return predictability of the oil industry," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 81(C).
    22. Jozef Baruník & Tobias Kley, 2019. "Quantile coherency: A general measure for dependence between cyclical economic variables," The Econometrics Journal, Royal Economic Society, vol. 22(2), pages 131-152.
    23. Yousaf, Imran & Yarovaya, Larisa, 2022. "Static and dynamic connectedness between NFTs, Defi and other assets: Portfolio implication," Global Finance Journal, Elsevier, vol. 53(C).
    24. Zhang, Dongna & Chen, Xihui Haviour & Lau, Chi Keung Marco & Xu, Bing, 2023. "Implications of cryptocurrency energy usage on climate change," Technological Forecasting and Social Change, Elsevier, vol. 187(C).
    25. Chowdhury, Mohammad Ashraful Ferdous & Abdullah, Mohammad & Alam, Masud & Abedin, Mohammad Zoynul & Shi, Baofeng, 2023. "NFTs, DeFi, and other assets efficiency and volatility dynamics: An asymmetric multifractality analysis," International Review of Financial Analysis, Elsevier, vol. 87(C).
    26. Abakah, Emmanuel Joel Aikins & Hossain, Sahib & Abdullah, Mohammad & Goodell, John W., 2024. "Global uncertainty factors and price connectedness between US electricity and blockchain markets: Findings from an R-square connectedness approach," Finance Research Letters, Elsevier, vol. 59(C).
    27. Max J. Krause & Thabet Tolaymat, 2018. "Author Correction: Quantification of energy and carbon costs for mining cryptocurrencies," Nature Sustainability, Nature, vol. 1(12), pages 814-814, December.
    28. Lee, Chi-Chuan & Yu, Chin-Hsien & Zhang, Jian, 2023. "Heterogeneous dependence among cryptocurrency, green bonds, and sustainable equity: New insights from Granger-causality in quantiles analysis," International Review of Economics & Finance, Elsevier, vol. 87(C), pages 99-109.
    29. Siddique, Md. Abubakar & Nobanee, Haitham & Hasan, Md. Bokhtiar & Uddin, Gazi Salah & Hossain, Md. Naiem & Park, Donghyun, 2023. "How do energy markets react to climate policy uncertainty? Fossil vs. renewable and low-carbon energy assets," Energy Economics, Elsevier, vol. 128(C).
    30. Bonato, Matteo & Cepni, Oguzhan & Gupta, Rangan & Pierdzioch, Christian, 2023. "Climate risks and realized volatility of major commodity currency exchange rates," Journal of Financial Markets, Elsevier, vol. 62(C).
    31. Sim, Nicholas & Zhou, Hongtao, 2015. "Oil prices, US stock return, and the dependence between their quantiles," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 1-8.
    32. Camilo Mora & Randi L. Rollins & Katie Taladay & Michael B. Kantar & Mason K. Chock & Mio Shimada & Erik C. Franklin, 2018. "Bitcoin emissions alone could push global warming above 2°C," Nature Climate Change, Nature, vol. 8(11), pages 931-933, November.
    33. Bolton, Patrick & Kacperczyk, Marcin, 2021. "Do investors care about carbon risk?," Journal of Financial Economics, Elsevier, vol. 142(2), pages 517-549.
    34. Naeem, Muhammad Abubakr & Hasan, Mudassar & Arif, Muhammad & Balli, Faruk & Shahzad, Syed Jawad Hussain, 2020. "Time and frequency domain quantile coherence of emerging stock markets with gold and oil prices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 553(C).
    35. Naeem, Muhammad Abubakr & Karim, Sitara, 2021. "Tail dependence between bitcoin and green financial assets," Economics Letters, Elsevier, vol. 208(C).
    36. Jarque, Carlos M. & Bera, Anil K., 1980. "Efficient tests for normality, homoscedasticity and serial independence of regression residuals," Economics Letters, Elsevier, vol. 6(3), pages 255-259.
    37. Max J. Krause & Thabet Tolaymat, 2018. "Quantification of energy and carbon costs for mining cryptocurrencies," Nature Sustainability, Nature, vol. 1(11), pages 711-718, November.
    38. Victor Troster, 2018. "Testing for Granger-causality in quantiles," Econometric Reviews, Taylor & Francis Journals, vol. 37(8), pages 850-866, September.
    39. Ge, Zhenyu, 2023. "The asymmetric impact of oil price shocks on China stock market: Evidence from quantile-on-quantile regression," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 120-125.
    40. Umar, Zaghum & Bossman, Ahmed & Choi, Sun-Yong & Teplova, Tamara, 2022. "Does geopolitical risk matter for global asset returns? Evidence from quantile-on-quantile regression," Finance Research Letters, Elsevier, vol. 48(C).
    41. Karim, Sitara & Lucey, Brian M. & Naeem, Muhammad Abubakr & Uddin, Gazi Salah, 2022. "Examining the interrelatedness of NFTs, DeFi tokens and cryptocurrencies," Finance Research Letters, Elsevier, vol. 47(PB).
    42. Cepni, Oguzhan & Demirer, Riza & Pham, Linh & Rognone, Lavinia, 2023. "Climate uncertainty and information transmissions across the conventional and ESG assets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 83(C).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hashmi, Shabir Mohsin & Lean, Hooi Hooi & Zhao, Manqi & Syed, Qasim Raza, 2025. "Nexus between energy security and role of women in politics: Evidence from BRICS countries," Economic Analysis and Policy, Elsevier, vol. 87(C), pages 1159-1178.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Abakah, Emmanuel Joel Aikins & Hossain, Sahib & Abdullah, Mohammad & Goodell, John W., 2024. "Global uncertainty factors and price connectedness between US electricity and blockchain markets: Findings from an R-square connectedness approach," Finance Research Letters, Elsevier, vol. 59(C).
    2. Abakah, Emmanuel Joel Aikins & Wali Ullah, G M & Abdullah, Mohammad & Lee, Chi-Chuan & Sulong, Zunaidah, 2024. "Correlation structure between fiat currencies and blockchain assets," Finance Research Letters, Elsevier, vol. 62(PA).
    3. Adeabah, David & Pham, Thu Phuong, 2025. "Asymmetric tail risk spillover and co-movement between climate risk and the international energy market," Energy Economics, Elsevier, vol. 141(C).
    4. Abakah, Emmanuel Joel Aikins & Wali Ullah, GM & Adekoya, Oluwasegun B. & Osei Bonsu, Christiana & Abdullah, Mohammad, 2023. "Blockchain market and eco-friendly financial assets: Dynamic price correlation, connectedness and spillovers with portfolio implications," International Review of Economics & Finance, Elsevier, vol. 87(C), pages 218-243.
    5. 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).
    6. Sharif, Arshian & Brahim, Mariem & Dogan, Eyup & Tzeremes, Panayiotis, 2023. "Analysis of the spillover effects between green economy, clean and dirty cryptocurrencies," Energy Economics, Elsevier, vol. 120(C).
    7. Pham, Linh & Kamal, Javed Bin, 2024. "Blessings or curse: How do media climate change concerns affect commodity tail risk spillovers?," Journal of Commodity Markets, Elsevier, vol. 34(C).
    8. Abakah, Emmanuel Joel Aikins & Abdullah, Mohammad & Tiwari, Aviral Kumar & Wali Ullah, G M, 2024. "Asymmetric dynamics between geopolitical conflict sentiment and cryptomarkets," Research in International Business and Finance, Elsevier, vol. 69(C).
    9. Fava, Santino Del & Gupta, Rangan & Pierdzioch, Christian & Rognone, Lavinia, 2024. "Forecasting international financial stress: The role of climate risks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 92(C).
    10. Li, Jie & Han, Yingwei, 2025. "Nonlinear hedging climate policy uncertainty: A dynamic mixed copula approach," Economic Modelling, Elsevier, vol. 151(C).
    11. Abakah, Emmanuel Joel Aikins & Goodell, John W. & Sulong, Zunaidah & Abdullah, Mohammad, 2024. "Wavelet quantile correlation between DeFi assets and banking stocks," Finance Research Letters, Elsevier, vol. 70(C).
    12. Sarker, Provash Kumer & Lau, Chi Keung Marco & Pradhan, Ashis Kumar, 2023. "Asymmetric effects of climate policy uncertainty and energy prices on bitcoin prices," Innovation and Green Development, Elsevier, vol. 2(2).
    13. Lorente, Daniel Balsalobre & Mohammed, Kamel Si & Cifuentes-Faura, Javier & Shahzad, Umer, 2023. "Dynamic connectedness among climate change index, green financial assets and renewable energy markets: Novel evidence from sustainable development perspective," Renewable Energy, Elsevier, vol. 204(C), pages 94-105.
    14. Díaz, Antonio & Esparcia, Carlos & Huélamo, Diego, 2023. "Unveiling the diversification capabilities of carbon markets in NFT portfolios," Finance Research Letters, Elsevier, vol. 58(PD).
    15. Kuang, Wei, 2025. "A tale of two risks: Differential diversification roles of clean energy sector stocks in physical and transition climate risk management," Renewable Energy, Elsevier, vol. 249(C).
    16. Lee, Chi-Chuan & Yu, Chin-Hsien & Zhang, Jian, 2023. "Heterogeneous dependence among cryptocurrency, green bonds, and sustainable equity: New insights from Granger-causality in quantiles analysis," International Review of Economics & Finance, Elsevier, vol. 87(C), pages 99-109.
    17. Clark, Ephraim & Lahiani, Amine & Mefteh-Wali, Salma, 2023. "Cryptocurrency return predictability: What is the role of the environment?," Technological Forecasting and Social Change, Elsevier, vol. 189(C).
    18. Patel, Ritesh & Gubareva, Mariya & Chishti, Muhammad Zubair, 2024. "Assessing the connectedness between cryptocurrency environment attention index and green cryptos, energy cryptos, and green financial assets," Research in International Business and Finance, Elsevier, vol. 70(PA).
    19. Nishant Sapra & Imlak Shaikh & Ashutosh Dash, 2023. "Impact of Proof of Work (PoW)-Based Blockchain Applications on the Environment: A Systematic Review and Research Agenda," JRFM, MDPI, vol. 16(4), pages 1-29, March.
    20. Abdullah, Mohammad & Chowdhury, Mohammad Ashraful Ferdous & Wali Ullah, G.M., 2025. "Asymmetric tail risk dynamics, efficiency and risk spillover among FinTech stocks, cryptocurrencies and traditional assets," Global Finance Journal, Elsevier, vol. 64(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • 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:phsmap:v:666:y:2025:i:c:s0378437125001827. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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.journals.elsevier.com/physica-a-statistical-mechpplications/ .

    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.