IDEAS home Printed from https://ideas.repec.org/a/kap/compec/v66y2025i3d10.1007_s10614-024-10790-3.html

Multi-scale Dynamic Correlation Between Climate Shock and China's Stock Market: Evidence Based on High Frequency Data

Author

Listed:
  • Mingyu Shu

    (Hefei University of Economics)

  • Jieli Wang

    (Anhui Universty)

  • Menglong Chen

    (Hefei University of Economics)

  • Hanru Wang

    (Hefei University of Economics)

Abstract

Recent climate events, such as extreme weather patterns and natural disasters, have led to significant financial losses and market volatility. This study was conducted to address the practical need for understanding how these climate shocks impact the Chinese stock market, particularly in terms of risk management and investment strategies. Three climate shock indices were developed by analyzing news text data from November 19, 2018, to November 4, 2023, and combining high-frequency data from nine industry indices of the Shanghai Stock Exchange. Text analysis methods were used in this process. TVP-VAR-DY and TVP-VAR-BK models were established to explore the multi-scale correlation between climate shock indices and volatility in the Chinese stock market, including upward and downward risks. The research results indicate a significant correlation between climate shocks and the Chinese stock market, with a certain time lag in their impact. These findings provide actionable insights for investors and financial institutions, enabling them to better anticipate and mitigate the effects of climate shocks on their portfolios, thereby enhancing risk management and investment efficiency.

Suggested Citation

  • Mingyu Shu & Jieli Wang & Menglong Chen & Hanru Wang, 2025. "Multi-scale Dynamic Correlation Between Climate Shock and China's Stock Market: Evidence Based on High Frequency Data," Computational Economics, Springer;Society for Computational Economics, vol. 66(3), pages 2265-2304, September.
    • Handle: RePEc:kap:compec:v:66:y:2025:i:3:d:10.1007_s10614-024-10790-3
    DOI: 10.1007/s10614-024-10790-3
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10614-024-10790-3
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10614-024-10790-3?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. Shang, Yuping & Ma, Xiaowei & Bhatia, Meena & Alofaysan, Hind & Walsh, Steven T., 2024. "Unveiling the enigma: Exploring how uncertain crude oil prices shape investment expenditure and efficiency in Chinese enterprises," Energy Economics, Elsevier, vol. 132(C).
    2. Gong, Xue & Lai, Ping & He, Mengxi & Wen, Danyan, 2024. "Climate risk and energy futures high frequency volatility prediction," Energy, Elsevier, vol. 307(C).
    3. Hao Zhou, 2018. "Variance Risk Premia, Asset Predictability Puzzles, and Macroeconomic Uncertainty," Annual Review of Financial Economics, Annual Reviews, vol. 10(1), pages 481-497, November.
    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. Karydas, Christos & Xepapadeas, Anastasios, 2022. "Climate change financial risks: Implications for asset pricing and interest rates," Journal of Financial Stability, Elsevier, vol. 63(C).
    6. Lv, Wendai & Li, Bin, 2023. "Climate policy uncertainty and stock market volatility: Evidence from different sectors," Finance Research Letters, Elsevier, vol. 51(C).
    7. Yin, Libo & Cao, Hong, 2024. "The propagation effect of climate risks on global stock markets: Evidence from the time and space domains," Energy Economics, Elsevier, vol. 132(C).
    8. Nawaz, Saima, 2021. "Energy poverty, climate shocks, and health deprivations," Energy Economics, Elsevier, vol. 100(C).
    9. Yan, Wan-Lin & Cheung, Adrian (Wai Kong), 2024. "Connectedness among Chinese climate policy uncertainty, exchange rate, Chinese and international crude oil markets: Insights from time and frequency domain analyses of high order moments," The North American Journal of Economics and Finance, Elsevier, vol. 73(C).
    10. Bonato, Matteo & Cepni, Oguzhan & Gupta, Rangan & Pierdzioch, Christian, 2023. "Climate risks and state-level stock market realized volatility," Journal of Financial Markets, Elsevier, vol. 66(C).
    11. Gianluca De Nard & Robert F. Engle & Bryan Kelly, 2024. "Factor-Mimicking Portfolios for Climate Risk," Financial Analysts Journal, Taylor & Francis Journals, vol. 80(3), pages 37-58, July.
    12. Lin, Boqiang & Wu, Nan, 2023. "Climate risk disclosure and stock price crash risk: The case of China," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 21-34.
    13. Reboredo, Juan C. & Ugolini, Andrea, 2022. "Climate transition risk, profitability and stock prices," International Review of Financial Analysis, Elsevier, vol. 83(C).
    14. Xunming Wang & Quansheng Ge & Xin Geng & Zhaosheng Wang & Lei Gao & Brett A. Bryan & Shengqian Chen & Yanan Su & Diwen Cai & Jiansheng Ye & Jimin Sun & Huayu Lu & Huizheng Che & Hong Cheng & Hongyan L, 2023. "Unintended consequences of combating desertification in China," Nature Communications, Nature, vol. 14(1), pages 1-9, December.
    15. Qian, Jia-Li & Zhou, Yin-Xiang & Hao, Qing-Yi, 2024. "The emergence of cooperative behavior based on random payoff and heterogeneity of concerning social image," Chaos, Solitons & Fractals, Elsevier, vol. 179(C).
    16. Yao, Xiaoyang & He, Wenjing & Li, Jianfeng & Le, Wei, 2023. "Climate policy uncertainty through production networks: Evidence from the stock market," Economics Letters, Elsevier, vol. 233(C).
    17. Su, Xianfang & He, Jian, 2024. "Quantile connectedness among fintech, carbon future, and energy markets: Implications for hedging and investment strategies," Energy Economics, Elsevier, vol. 139(C).
    18. Shang, Yuping & Sang, Shenghu & Tiwari, Aviral Kumar & Khan, Salahuddin & Zhao, Xin, 2024. "Impacts of renewable energy on climate risk: A global perspective for energy transition in a climate adaptation framework," Applied Energy, Elsevier, vol. 362(C).
    19. Jochen Monstadt, 2007. "Urban Governance and the Transition of Energy Systems: Institutional Change and Shifting Energy and Climate Policies in Berlin," International Journal of Urban and Regional Research, Wiley Blackwell, vol. 31(2), pages 326-343, June.
    20. Mike Hulme & Elaine M. Barrow & Nigel W. Arnell & Paula A. Harrison & Timothy C. Johns & Thomas E. Downing, 1999. "Relative impacts of human-induced climate change and natural climate variability," Nature, Nature, vol. 397(6721), pages 688-691, February.
    21. Holly P. Jones & David G. Hole & Erika S. Zavaleta, 2012. "Harnessing nature to help people adapt to climate change," Nature Climate Change, Nature, vol. 2(7), pages 504-509, July.
    22. Alejandro de la Fuente, 2007. "Climate Shocks and their Impact on Assets," Human Development Occasional Papers (1992-2007) HDOCPA-2007-23, Human Development Report Office (HDRO), United Nations Development Programme (UNDP).
    23. Nikolaos Antonakakis & Ioannis Chatziantoniou & David Gabauer, 2020. "Refined Measures of Dynamic Connectedness based on Time-Varying Parameter Vector Autoregressions," JRFM, MDPI, vol. 13(4), pages 1-23, April.
    24. Koop, Gary & Korobilis, Dimitris, 2014. "A new index of financial conditions," European Economic Review, Elsevier, vol. 71(C), pages 101-116.
    25. Stefano Giglio & Matteo Maggiori & Krishna Rao & Johannes Stroebel & Andreas Weber & Stijn Van Nieuwerburgh, 2021. "Climate Change and Long-Run Discount Rates: Evidence from Real Estate [Abrupt climate change]," The Review of Financial Studies, Society for Financial Studies, vol. 34(8), pages 3527-3571.
    26. Engle, Robert F. & Campos-Martins, Susana, 2023. "What are the events that shake our world? Measuring and hedging global COVOL," Journal of Financial Economics, Elsevier, vol. 147(1), pages 221-242.
    27. Chatziantoniou, Ioannis & Gabauer, David, 2021. "EMU risk-synchronisation and financial fragility through the prism of dynamic connectedness," The Quarterly Review of Economics and Finance, Elsevier, vol. 79(C), pages 1-14.
    28. Bolton, Patrick & Kacperczyk, Marcin, 2021. "Do investors care about carbon risk?," Journal of Financial Economics, Elsevier, vol. 142(2), pages 517-549.
    Full references (including those not matched with items on IDEAS)

    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. Mingyu Shu & Baoliu Liu & Jieli Wang & Yujie Huang, 2025. "How Climate Shocks Affect Stock Market Risk Spillovers: Evidence from Causal Forest Algorithm," Computational Economics, Springer;Society for Computational Economics, vol. 66(5), pages 4417-4449, November.
    2. Elie Bouri & Rangan Gupta & Asingamaanda Liphadzi & Christian Pierdzioch, 2026. "Forecasting the volatility of stock returns in the G7 countries over centuries: the role of climate risks," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 50(1), pages 1-32, December.
    3. Zhou, Mingtao & Ma, Yong, 2025. "Physical vs. Transition climate risks: Asymmetric effects on stock return predictability," International Review of Financial Analysis, Elsevier, vol. 104(PA).
    4. 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).
    5. Li, Jie & Han, Yingwei, 2025. "Nonlinear hedging climate policy uncertainty: A dynamic mixed copula approach," Economic Modelling, Elsevier, vol. 151(C).
    6. Yufeng Chen & Simin Shen & Chuwen Wang, 2025. "Climate risks and stock market volatility spillover: new insights from wavelet and causality methods," Economic Change and Restructuring, Springer, vol. 58(3), pages 1-32, June.
    7. Liu, Yike & Xu, Zihan & Xing, Xiaoyun & Zhu, Yuxuan, 2024. "Can Chinese investors manage climate risk domestically and globally?," International Review of Economics & Finance, Elsevier, vol. 96(PB).
    8. Han, SeungOh, 2024. "Hedging strategies for U.S. factor and sector exchange-traded funds during geopolitical events," Finance Research Letters, Elsevier, vol. 65(C).
    9. Han, SeungOh, 2025. "Dynamic hedging strategies for U.S. investors in international stock ETFs following geopolitical conflicts," Finance Research Letters, Elsevier, vol. 72(C).
    10. Bouri, Elie & Gabauer, David & Gupta, Rangan & Kinateder, Harald, 2023. "Global geopolitical risk and inflation spillovers across European and North American economies," Research in International Business and Finance, Elsevier, vol. 66(C).
    11. Niu, Hongli & Hu, Wenwen, 2024. "Static and dynamic interdependencies among natural gas, stocks of global major economies and uncertainty," Resources Policy, Elsevier, vol. 94(C).
    12. Stenfors, Alexis & Chatziantoniou, Ioannis & Gabauer, David, 2022. "Independent policy, dependent outcomes: A game of cross-country dominoes across European yield curves," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 81(C).
    13. Giannellis, Nikolaos, 2022. "Cryptocurrency market connectedness in Covid-19 days and the role of Twitter: Evidence from a smooth transition regression model," Research in International Business and Finance, Elsevier, vol. 63(C).
    14. Jung, Hyeyoon & Engle, Robert F. & Berner, Richard, 2025. "CRISK: Measuring the climate risk exposure of the financial system," Journal of Financial Economics, Elsevier, vol. 171(C).
    15. Doğan, Buhari & Radulescu, Magdalena & Nassani, Abdelmohsen A. & Mohammed, Kamel S.I. & Benlagha, Noureddine & Baldan, Cristina Florentina, 2025. "Spillovers across the crude oil and major currencies exchange rates using dynamic-quantile-frequency analysis," International Review of Economics & Finance, Elsevier, vol. 99(C).
    16. Al-Nassar, Nassar S. & Assaf, Rima & Chaibi, Anis & Makram, Beljid, 2024. "The nexus between mineral, renewable commodities, and regional stock sectors during health and military crises," Resources Policy, Elsevier, vol. 96(C).
    17. Trinh, Vu Quang & Trinh, Hai Hong & Li, Teng & Vo, Xuan Vinh, 2024. "Climate change exposure, financial development, and the cost of debt: Evidence from EU countries," Journal of Financial Stability, Elsevier, vol. 74(C).
    18. Benkraiem, Ramzi & Dimic, Nebojsa & Piljak, Vanja & Swinkels, Laurens & Vulanovic, Milos, 2025. "Media-based climate risks and international corporate bond market," Journal of International Money and Finance, Elsevier, vol. 151(C).
    19. Ugolini, Andrea & Reboredo, Juan C. & Ojea-Ferreiro, Javier, 2024. "Is climate transition risk priced into corporate credit risk? Evidence from credit default swaps," Research in International Business and Finance, Elsevier, vol. 70(PB).
    20. Cerqueti, Roy & Stefanelli, Kevyn, 2025. "Spotlighting energy sector through green transition attention," Energy, Elsevier, vol. 335(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    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:kap:compec:v:66:y:2025:i:3:d:10.1007_s10614-024-10790-3. 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    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.