Interactive effects of economic, geopolitical, and climate risks on commodity volatility

This study employs a quantile moments approach to examine how economic policy uncertainty (EPU), geopolitical risk (GPR), and climate risks affect commodity return volatility. By incorporating interaction effects, we show that models ignoring these interactions underestimate volatility by up to 35% during stress periods. The analysis reveals varied effects across different volatility regimes, with transition climate risk intensifying market volatility particularly during turbulent times, whereas physical climate risk exhibits a mitigating effect. These findings offer valuable implications for risk management and policy coordination in commodity markets, highlighting the importance of considering interaction effects both normal and volatile market conditions.