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Research on the Contagion of Systemic Financial Risk Under the Impact of Climate Risks-From the Perspective of
Xiao-Li Gong1,2, Xiao-Han Sun1, Sergey Aleksandrovich Philin3
1School of Economics, Qingdao University, Qingdao 266061, China.
Entropy (Basel, Switzerland)
|June 26, 2026
Summary
Climate change significantly impacts China's financial markets, driving volatility and risk contagion. Advanced models show physical risks increase short-term contagion, while transition risks have complex long-term effects on financial stability.
Area of Science:
- Environmental Finance
- Financial Risk Management
- Climate Change Economics
Background:
- Climate risks pose a growing threat to financial system stability.
- Understanding climate risk transmission within financial markets is crucial for effective management.
- China's financial system is increasingly exposed to climate-related shocks.
Purpose of the Study:
- To systematically analyze the impact of climate risks on China's financial system.
- To measure tail risk spillovers and construct a risk contagion network under climate shocks.
- To develop an innovative early warning system for climate-related financial risks.
Main Methods:
- EGARCH-SGED model for financial market volatility.
- LASSO-CoVaR method for tail risk spillover measurement.
- RF-AdaBoost model for risk early warning system construction.
Main Results:
- Climate risk is a key driver of dynamic correlations within China's financial system.
- Physical risks intensify short-term contagion; transition risks have dynamic, long-term effects.
- The RF-AdaBoost model demonstrates superior predictive accuracy for risk warning.
Conclusions:
- Climate risk significantly influences financial market dynamics and systemic stability in China.
- Differentiated impacts of physical and transition risks require tailored management strategies.
- The developed early warning system offers robust support for climate risk prevention and financial stability.
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