Sustainability uncertainty and the stock market volatility in advanced and emerging markets : the role of the oil orientation of countries

Abstract

We provide new evidence on the relationship between sustainability uncertainty and stock market volatility, focusing on two channels of transmission: level of development and oil orientation. We categorize markets into advanced and emerging economies, and oil-producing and non-oil-producing countries. Our findings show that the relationship varies significantly. Oil-producing countries exhibit a notable sensitivity to sustainability-related uncertainty, particularly during heightened uncertainty, while emerging markets respond more to it, seeking higher expected returns. In contrast, developed markets show weaker or opposing reactions. We suggest that empirical research should consider countries' oil orientation and the level of development when analyzing climate-related shocks in financial markets. Our results highlight the need for distinct market classifications and underscore the importance of market development in shaping responses to sustainability uncertainty, advocating coordinated global efforts to reduce it.