Measuring the Climate Transition Risk Spillover

52 Pages Posted: 4 Jan 2023

See all articles by Runfeng Yang

Runfeng Yang

Università Ca' Foscari Venezia

Massimiliano Caporin

University of Padua - Department of Statistical Sciences

Juan-Angel Jiménez-Martin

Complutense University of Madrid

Date Written: December 27, 2022

Abstract

Climate transition risk, the generated from the transition to a low-carbon economy due to changing policies, can have cross-border impacts. In this paper, we study the transition risk spillover among six major financial markets globally from 2013 to 2021. We evidence the transition risk spillover. We find that Canada and the US are main transition risk transmitters, and Europe and Japan are the main receivers of the transition risk. Such role of transmission could change over time and change according to different types of transition risk shocks. It takes around three weeks for transition risk to be fairly transmitted. On average, around 40% – 50% of local climate transition risk shocks comes from outside. The transition risk spillover is also affected by other factors. When the financial markets are more connected, the risk spillover is higher. A more tense geopolitical relationship could mean higher risk spillover. A more stringent local climate policy means lower risk received and higher risk given. We also find that a higher climate sentiment is associated with higher level of risk transmission.

Keywords: Climate Risk, Carbon Risk Premium, Quantile Regression, Risk Spillover

JEL Classification: G12, G32, C51

Suggested Citation

Yang, Runfeng and Caporin, Massimiliano and Jiménez-Martin, Juan-Angel, Measuring the Climate Transition Risk Spillover (December 27, 2022). Available at SSRN: https://ssrn.com/abstract=4313289 or http://dx.doi.org/10.2139/ssrn.4313289

Runfeng Yang

Università Ca' Foscari Venezia ( email )

Venice
Italy

Massimiliano Caporin

University of Padua - Department of Statistical Sciences ( email )

Via Battisti, 241
Padova, 35121
Italy

Juan-Angel Jiménez-Martin (Contact Author)

Complutense University of Madrid ( email )

Complutense University of Madrid
Campus de somosaguas
Pozuelo de Alarcon, Madrid 28223
Spain
+34 91 3942355 (Phone)

HOME PAGE: http://www.ucm.es/fundamentos-analisis-economico2/jajm

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