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Climate Risk and Systemic Risk: Insights from Extreme Risk Spillover Networks

Author

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  • Zhe Zhai
  • Lin Chen
  • Longfeng Zhao
  • Yajie Yang
  • Ramiz ur Rehman

Abstract

Climate change shocks pose a threat to the stability of financial systems. This study examines the influence of climate risk on systemic risk in the Chinese market via an extreme risk spillover network. Moreover, we construct climate risk indices for physical risk (abnormal temperature) and transition risk (climate policy uncertainty). We demonstrate a significant increase in systemic risk due to climate risk, which can be attributed, in part, to investor sentiment. Furthermore, institutional investors can mitigate the adverse impact of climate risk. Our findings suggest that policymakers and investors need to exercise greater vigilance in addressing climate-related adverse effects. JEL Codes: G11, G15, G32

Suggested Citation

  • Zhe Zhai & Lin Chen & Longfeng Zhao & Yajie Yang & Ramiz ur Rehman, 2026. "Climate Risk and Systemic Risk: Insights from Extreme Risk Spillover Networks," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 25(1), pages 29-57, March.
    • Handle: RePEc:sae:emffin:v:25:y:2026:i:1:p:29-57
    DOI: 10.1177/09726527251366484
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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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