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Climate, geopolitical, and energy market risk interconnectedness: Evidence from a new climate risk index

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  • Gu, Qinen
  • Li, Shaofang
  • Tian, Sihua
  • Wang, Yuyouting

Abstract

Using meteorological monitoring data from eight climate disasters across the globe along with financial data from the WTI and BNG energy markets, this study employs the fixed-base extreme difference entropy method to construct a climate risk index (CRI) and investigates the relationship between climate risk, geopolitical risk (GPR), and energy market risk based on the mixed-frequency VAR (MF-VAR) method. The empirical results show that an increase in both GPR and CRI is related to an increase in energy market risk, and that a higher CRI is associated with greater GPR. Moreover, the positive relationship between CRI scores and energy market risk after the Paris Agreement has grown stronger.

Suggested Citation

  • Gu, Qinen & Li, Shaofang & Tian, Sihua & Wang, Yuyouting, 2023. "Climate, geopolitical, and energy market risk interconnectedness: Evidence from a new climate risk index," Finance Research Letters, Elsevier, vol. 58(PB).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pb:s154461232300764x
    DOI: 10.1016/j.frl.2023.104392
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    More about this item

    Keywords

    Climate risk; Geopolitical risk; Energy markets risk; MF-VAR;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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