The impact of climate policy on the risk contagion in China’s stock markets

This paper analyses the impact of climate policy on the risk transmissions in China's stock markets from sectoral perspectives. By constructing a (Generalized Autoregressive Conditional Heteroskedasticity-Mixed Data Sampling) GARCH-MIDAS model and conducting quantile regression tests, we find that climate policy exacerbates the tail risk spillover effect within the stock markets, while the sectoral effects would present heterogeneity. Both the spillovers and the systemic importance of finance and energy-intensive subsectors are susceptible to climate policy shocks. As for agriculture, its cross-sector spillovers are considerably intensified by climate policy, though its systemic importance is only enhanced by the policy in the long-run.