Effect of Climate Changes, Induced Risks, and Oil Price Appreciation on Energy Stock Returns in World Markets

ABSTRACT This study examines the impact of climate policy uncertainty (CPU) on world energy stock returns. Evidence shows that a rise in CPU causes stocks to plummet in individual countries, regions, and the world energy stock markets. The negative effects are also exhibited in climate induced risks, the covariance between a change in CPU and equity market volatility (EMV) as well as the covariance between energy and environmental uncertainty and EMV on stock returns. Evidence shows the presence of negative relationships between oil prices and stock returns, except in Gulf Cooperation Council region and Kuwait, which are oil‐exporting markets.