Climate Risk and Systemic Risk: Insights from Extreme Risk Spillover Networks

Zhe Zhai; Lin Chen; Longfeng Zhao; Yajie Yang; Ramiz Ur Rehman

doi:10.2139/ssrn.4690920

Climate Risk and Systemic Risk: Insights from Extreme Risk Spillover Networks

Zhe Zhai, Lin Chen, Longfeng Zhao, Yajie Yang, Ramiz Ur Rehman

Research output: Working paper › Preprint

Abstract

Climate change shocks pose a threat to the stability of the financial system. This study examines the influence of climate risks on systemic risk in the Chinese market by utilizing extreme risk spill over network. Moreover, we construct climate risk indices for physical risks (abnormal temperature), and transition risks (Climate Policy Uncertainty). We demonstrate a significant increase in systemic risk due to climate risks, which can be attributed, in part, to investor sentiment. Furthermore, institutional investors can mitigate the adverse impact of climate risks. Our findings suggest that policymakers and investors need to exercise greater vigilance in addressing climate-related adverse effects.

Original language	English
Publisher	SSRN
Number of pages	19
DOIs	https://doi.org/10.2139/ssrn.4690920
Publication status	Published - 1 Oct 2024

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abstract = "Climate change shocks pose a threat to the stability of the financial system. This study examines the influence of climate risks on systemic risk in the Chinese market by utilizing extreme risk spill over network. Moreover, we construct climate risk indices for physical risks (abnormal temperature), and transition risks (Climate Policy Uncertainty). We demonstrate a significant increase in systemic risk due to climate risks, which can be attributed, in part, to investor sentiment. Furthermore, institutional investors can mitigate the adverse impact of climate risks. Our findings suggest that policymakers and investors need to exercise greater vigilance in addressing climate-related adverse effects.",

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AB - Climate change shocks pose a threat to the stability of the financial system. This study examines the influence of climate risks on systemic risk in the Chinese market by utilizing extreme risk spill over network. Moreover, we construct climate risk indices for physical risks (abnormal temperature), and transition risks (Climate Policy Uncertainty). We demonstrate a significant increase in systemic risk due to climate risks, which can be attributed, in part, to investor sentiment. Furthermore, institutional investors can mitigate the adverse impact of climate risks. Our findings suggest that policymakers and investors need to exercise greater vigilance in addressing climate-related adverse effects.

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Climate Risk and Systemic Risk: Insights from Extreme Risk Spillover Networks

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