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Geopolitical risks and climate change stocks
Sercan Demiralay1, Yan Wang1, Conghui Chen1
1Department of Accounting and Finance, Nottingham Business School, Nottingham Trent University, Nottingham, UK.
Journal of Environmental Management
|January 6, 2024
Summary
Geopolitical risk (GPR) impacts climate stock returns and volatility asymmetrically. Market conditions and geopolitical events, like the Russia-Ukraine war, significantly influence these effects on regional climate investments.
Area of Science:
- Environmental Finance
- Geopolitical Risk Analysis
- Climate Change Economics
Background:
- Climate change stocks are increasingly important investment vehicles.
- Geopolitical events introduce significant uncertainty into financial markets.
- Understanding the interplay between geopolitical risk and climate investments is crucial.
Purpose of the Study:
- To investigate the impact of geopolitical risk (GPR), geopolitical threats (GPT), and geopolitical acts (GPA) on climate change stock returns and volatilities.
- To analyze these impacts across different market conditions and geographical regions.
- To provide insights for financial market participants and policymakers.
Main Methods:
- Utilized quantile regressions to analyze the asymmetric and heterogeneous effects of GPR, GPT, and GPA.
- Examined stock returns and volatilities of regional climate change stocks.
- Considered different market conditions, including bullish and bearish states.
Main Results:
- Climate stock returns show a positive response to GPR in bullish markets and a negative response in bearish markets, varying by region.
- Geopolitical tensions generally increase stock volatilities, with geopolitical acts having a stronger impact than threats.
- GPR exacerbated volatility during the Russia-Ukraine war, highlighting heightened uncertainty.
Conclusions:
- Geopolitical risks exert an asymmetric and heterogeneous influence on climate change stocks.
- Financial market participants and policymakers need to account for these complex dynamics.
- The findings underscore the vulnerability of climate investments to global geopolitical instability.
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