Geopolitical risks and climate change stocks
Abstract
This paper aims to examine the impact of geopolitical risk (GPR), threats (GPT) and acts (GPA) on returns and volatilities of regional climate change stocks under different market conditions, employing quantile regressions. Our main results suggest that climate change stock returns positively (negatively) respond to GPR in bullish (bearish) market states, however the effect is not uniform across the regions. The volatilities mainly show a positive response to geopolitical tensions; geopolitical acts appear to have a more pronounced impact on volatilities than geopolitical threats. We further find that GPR leads to higher volatility during the Russia-Ukraine war, creating heightened uncertainty. Overall, the results reveal that geopolitical risks have an asymmetric and heterogenous impact on climate change stocks. The results provide significant insights and implications for financial market participants and policy makers.
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