How climate policy uncertainty affects financial markets

As the world’s two biggest emitters of carbon dioxide, China and the US face pressure to implement policies that will help mitigate the effects of climate change. However, unpredictable and unclear climate policies create uncertainty for investors, businesses and consumers – and may ultimately affect financial markets. This paper explores the effects of climate policy uncertainty on stock and commodity markets in the US and China.

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• The research uses quintile cointegration and Granger causality to explore the relationship between climate policy uncertainty and financial markets in China and the US. 
• Financial market analysis is based on observations from the Shanghai and Shenzhen stock exchanges in China, and NASDAQ and the S&P 500 in the US. Commodity markets in both countries are also examined.
• The authors compare how US and Chinese climate policy uncertainties affect each other’s financial markets, particularly during extreme market conditions.
• Various quantile autoregressive models are used to ensure the robustness of the causality findings.