Climate risks and stock market volatility over a century in an emerging market economy : the case of South Africa

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dc.contributor.author Wu, Kejin
dc.contributor.author Karmakar, Sayar
dc.contributor.author Gupta, Rangan
dc.contributor.author Pierdzioch, Christian
dc.date.accessioned 2024-10-16T08:42:34Z
dc.date.available 2024-10-16T08:42:34Z
dc.date.issued 2024-05
dc.description DATA AVAILABILITY STATEMENT : The data used in this paper can be found through the link in Section 5. en_US
dc.description.abstract Because climate change broadcasts a large aggregate risk to the overall macroeconomy and the global financial system, we investigate how a temperature anomaly and/or its volatility affect the accuracy of forecasts of stock return volatility. To this end, we do not apply only the classical GARCH and GARCHX models, but rather we apply newly proposed model-free prediction methods, and use GARCH-NoVaS and GARCHX-NoVaS models to compute volatility predictions. These two models are based on a normalizing and variance-stabilizing transformation (NoVaS transformation) and are guided by a so-called model-free prediction principle. Applying the new models to data for South Africa, we find that climate-related information is helpful in forecasting stock return volatility. Moreover, the novel model-free prediction method can incorporate such exogenous information better than the classical GARCH approach, as revealed by the the squared prediction errors. More importantly, the forecast comparison test reveals that the advantage of applying exogenous information related to climate risks in prediction of the South African stock return volatility is significant over a century of monthly data (February 1910–February 2023). Our findings have important implications for academics, investors, and policymakers. en_US
dc.description.department Economics en_US
dc.description.librarian hj2024 en_US
dc.description.sdg SDG-08:Decent work and economic growth en_US
dc.description.sdg SDG-13:Climate action en_US
dc.description.sponsorship Partially supported by NSF DMS. en_US
dc.description.uri https://www.mdpi.com/journal/climate en_US
dc.identifier.citation Wu, K.; Karmakar, S.; Gupta, R.; Pierdzioch, C. Climate Risks and Stock Market Volatility over a Century in an Emerging Market Economy: The Case of South Africa. Climate 2024, 12, 68. https://doi.org/10.3390/cli12050068. en_US
dc.identifier.issn 2225-1154 (online)
dc.identifier.other 10.3390/cli12050068
dc.identifier.uri http://hdl.handle.net/2263/98614
dc.language.iso en en_US
dc.publisher MDPI en_US
dc.rights © 2024 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https://creativecommons.org/licenses/by/4.0/). en_US
dc.subject Climate risks en_US
dc.subject Volatility en_US
dc.subject Forecasting en_US
dc.subject Model-free prediction en_US
dc.subject Generalized autoregressive conditional heteroskedasticity (GARCH) en_US
dc.subject Flexible and robust GARCH-X modelling (GARCHX) en_US
dc.subject South Africa (SA) en_US
dc.subject SDG-08: Decent work and economic growth en_US
dc.subject SDG-13: Climate action en_US
dc.title Climate risks and stock market volatility over a century in an emerging market economy : the case of South Africa en_US
dc.type Article en_US


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