The asymmetric effects of climate risk on higher-moment connectedness among carbon, energy and metals markets

Climate change affects price fluctuations in the carbon, energy and metals markets through physical and transition risks. Climate physical risk is mainly caused by extreme weather, natural disasters and other events caused by climate change, whereas climate transition risk mainly results from the gradual switchover to a low-carbon economy. Given that the connectedness between financial markets may be affected by various factors such as extreme events and economic transformation, understanding the different roles of climate physical risk and transition risk on the higher-moment connectedness across markets has important implications for investors to construct portfolios and regulators to establish regulation system. Here, using the GJRSK model, time-frequency connectedness framework and quantile-on-quantile method, we show asymmetric effects of climate risk on connectedness among carbon, energy and metals markets, with higher impacts of climate physical risk on upward risk spillovers, and greater effects of climate transition risk on the downside risk of kurtosis connectedness.