The Impact of Climate Change Factors on Financial Markets: Evidence from China

This paper examines the impact of climate change factors, namely Climate Risk Index (CRI), Climate Policy Index (CPI), and Climate Concern Index (CCI), on China’s financial markets. By employing quantile vector autoregression model and conducting network analysis, this paper intends to reveal the dynamic relationship and the risk transmission mechanism between climate factors and various financial markets under different market conditions based on the data ranging from Nov.1, 2011 to December 31, 2021. We find that climate shocks intensify the risk contagion among China’s financial markets, and the impact induced by each factor would present heterogeneity. The results also indicate that the systemic importance of climate shock index varies across market conditions. The findings shed light on the complex interaction between climate shocks and financial markets, which should contribute to policy implications for financial market stability and risk prevention.