Technological Forecasting & Social Change 178 (2022) 121586

Contents lists available at ScienceDirect

Technological Forecasting & Social Change

journal homepage: www.elsevier.com/locate/techfore

The effect of climate news risk on uncertainties

Liping Ye a
a
College of Public Administration, Central China Normal University, Wuhan 430079, China

A R T I C L E I N F O A B S T R A C T

Keywords: Using the Wall Street Journal (WSJ) climate news index, this paper investigates the time-varying shock effects of
Climate news risk climate news risk on uncertainties, which mainly include energy market uncertainty, economic policy uncer­
OVX tainty and financial market uncertainty. The degree of the effect of climate news risk on uncertainties varies in
EPU
the short, medium and long terms; the short-term effect is the greatest, followed by the medium- and long-term
VIX
TVP-VAR
effects. While climate news risk has a positive effect on economic policy uncertainty, it has a negative effect on
energy market uncertainty. Climate news risk had a negative effect on financial market uncertainty before 2013
and has had a positive effect since 2013. During the UN Climate Change Conferences in Copenhagen, Doha and
Paris, climate news risk shocks were found to have the greatest effect on economic policy uncertainty, followed
by the effect on energy market uncertainty. The smallest degree of effect was on financial market uncertainty.

1. Introduction However, there is considerable uncertainty regarding to climate

Global warming has caused frequent extreme weather events in
many regions and countries worldwide. Natural disasters such as floods,
hurricanes, droughts and extreme heat have caused considerable losses
to the local economy (Fang et al., 2019; Lemoine and Kapnick, 2016;
Moore and Diaz, 2015). Extreme disaster events caused by global
warming have significantly impacted financial markets, and climate risk
has become a significant source of systemic risk and a substantial focal
point in financial markets (Battiston et al., 2017; Dietz et al., 2016).
Additionally, frequent climate disasters bring forth inevitable risks to
energy supply, leading to a potential influence on the energy market
(Ghadge et al., 2020; Stern et al., 2016). At the same time, diversified
measures of greenhouse gas emission reduction have been adopted to
reduce climate risks (Eom et al., 2015); the energy structure has been
optimised and the proportion of renewable energy consumption has
been improved (Foramitti et al., 2021; Rosen and Guenther, 2015).
These climate change measures have also significantly impacted the
energy market (van Ruijven et al., 2019). In general, climate risks have
had a significant and unavoidable impact on economic activities,
financial markets and energy markets. Therefore, an in-depth analysis of
the effect mechanism of climate risk shocks on economic activities,
financial markets and energy markets is conducive to the formulation of
effective climate policies by climate policy makers. Moreover, it can
provide decision support for institutional investors in financial and en­
ergy markets to optimise climate risk management strategies (Crecente
et al., 2021; Semeyutin et al., 2021; van Renssen, 2014).
change (Gavriilidis, 2021; Lamperti et al., 2020; Pidgeon and Fischhoff,
2011). With uncertain changes, climate risk shocks affect economic
policy, financial markets and energy markets. As for the uncertainty of
economic policy, climate risk shocks may disrupt the normal operation
of economic activities and generate great uncertainties for economic
activities. As for the uncertainty in the financial market, climate di­
sasters caused by climate risks may lead to asset losses or stranding, thus
expanding credit risks and leading to a massive impact on the financial
market. As for the uncertainty in the energy market, the fossil energy
market is bound to be affected when tackling climate risk. Overall,
climate risk has become a significant source of uncertainty.
Many scholars have found that climate risks have a great impact on
economic activities (Diaz and Moore, 2017; Jiang et al., 2021; Lu et al.,
2019; Tol, 2009; Zhang et al., 2021). For example, Burke et al. (2015)
analysed the impact of climate change on global economic activities and
found that temperature change had a nonlinear impact on economic
output for all countries. The economic output was the highest when the
annual average temperature was 13 ◦ C. At an increase temperature, the
economic output decreased significantly Carleton and Hsiang (2016).
found that climate change significantly impacted the historical evolu­
tion of the global economy Auffhammer (2018). reviewed the ways in
which climate economists quantified climate economic losses Takakura
et al. (2019). found that the least favourable path in the absence of
emission reduction would lead to a 6.6% loss of the global gross do­
mestic product by the end of this century Piontek et al. (2021). quan­
titatively analysed the biophysical impact of climate change on the

E-mail address: lpye@mail.ccnu.edu.cn.

https://doi.org/10.1016/j.techfore.2022.121586
Received 12 October 2021; Received in revised form 14 February 2022; Accepted 16 February 2022
Available online 24 February 2022
0040-1625/© 2022 Elsevier Inc. All rights reserved.
L. Ye
Fig. 1. Trend of WSJ climate change news and uncertainty indices.
economy. It has been seen that climate change impacts on energy sup­
ply, and some in-depth studies have been conducted on the impact
mechanism of climate risk on energy supply and the energy market
(Byers et al., 2020). Mideksa and Kallbekken (2010) found that climate
change would affect the electricity market by affecting the demand and
supply of electricity. Perera et al. (2020) noted that extreme climate
events would affect the stability of energy demand and energy supply
systems.
2
Technological Forecasting & Social Change 178 (2022) 121586
Recently, the impact of climate risk on the financial market has
gained increasing attention (Rubtsov et al., 2021). For example, Dietz
et al. (2016) used an integrated assessment model to estimate the impact
of twenty-first century climate change on current global financial capital
markets. They found that the climate value at risk in the global financial
capital market was 1.8% in a business-as-usual emissions scenario Bat­
tiston et al. (2017). found that climate policy could lead to potential
winners and losers in the financial sector Campiglio et al. (2018).
L. Ye Technological Forecasting & Social Change 178 (2022) 121586

Table 1
Summary statistics and unit root tests from July 2008 to June 2017.
Index Difference
NEWS OVX EPU VIX NEWS OVX EPU VIX

Mean 68.481 38.233 132.907 20.525 − 0.024 − 0.144 0.039 − 0.093

Median 63.695 35.440 131.856 17.300 1.155 − 1.220 − 2.599 − 0.495
Max 193.580 95.900 245.127 62.980 88.469 28.590 91.870 23.270
Min 38.658 14.740 71.262 9.750 − 119.426 − 23.050 − 81.116 − 23.790
Std. dev. 22.612 14.965 35.676 9.790 25.822 7.608 26.592 5.646
Skewness 2.610 1.300 0.414 2.030 − 0.462 0.633 0.484 0.163
Kurtosis 12.953 5.470 2.536 7.421 8.803 5.604 4.727 7.384
J-B 573.690 58.427 4.089 163.662 155.371 37.725 17.638 86.968
Probability 0.000 0.000 0.129 0.000 0.000 0.000 0.000 0.000
ADF − 4.298*** − 2.725* − 4.153*** − 2.989** − 18.311*** − 10.830*** − 10.544*** − 11.241***

Note: ***, ** and * denote significance at the 1%, 5% and 10% levels, respectively.

analysed the impact of climate change and low-carbon transition on
financial stability Lamperti et al. (2019). used a multi-agent model to
analyse the credit loans provided by multiple banks for production ac­
tivities exposed to climate disasters; they found that climate change
increased the frequency of banking crises (26–148%) Hong et al. (2019).
analysed whether food stock prices discounted the risk of drought
caused by global warming. By using data from 31 countries with pub­
licly traded food companies and ranking them based on their long-term
drought trends, they found that lower-ranked countries also had lower
profits for their food companies (Hong et al., 2019) Choi et al. (2020).
used the Google search volume to evaluate the attention paid to climate
change, and found that, in financial markets, the stocks of high-carbon
companies underperformed compared to those of low-carbon com­
panies in extreme hot weather Painter (2020). analysed the impact of
climate risk on municipal bonds and found that long-term municipal
bonds were priced at the level of climate risk. Meanwhile, climate
change became an important factor that affected investors’ decisions
Huynh et al. (2020). showed that there was a significant positive rela­
tionship between drought risk and the cost of equity capital; when en­
terprises were affected by drought, enterprises with higher local
institutional holdings showed higher costs of equity capital Nguyen and
Phan (2020). used Australia’s signing of the Kyoto Protocol as a
quasi-natural experiment to analyse the impact of carbon risk on the
capital structure of Australian enterprises. The study found that
carbon-heavy enterprises significantly reduced their financial leverage
after the signing of the Kyoto Protocol, showing that carbon-heavy en­
terprises were less likely to obtain financial loans from major banks
Bolton and Kacperczyk (2021). analysed whether carbon emissions
affected the return of U.S. stocks. When controlling for factors such as
size, book-to-market ratios and momentum, the stocks of companies
with higher carbon emissions were found to earn higher returns. Addi­
tionally, investors demanded compensation for their exposure to carbon
emissions Huynh and Xia (2021). analysed whether climate news risk
was priced in corporate bonds. They found that bonds with higher
climate news beta values would be less profitable in the future, and that
investors concerned about climate risk were willing to pay higher prices
for bonds issued by more environmentally friendly companies Ilhan
et al. (2021). pointed out that strong regulatory actions were required to
deal with climate change; however, climate policy uncertainty made it
difficult for investors to quantify the impact of future climate regulation.
When public attention to climate change is at its peak, the cost of option
protection against downside tail risks becomes correspondingly large for
high-carbon companies.
Previous literature primarily analysed the impact of climate change
on the economy, energy structure and financial market. Climate change
risks have been concluded to have a significant impact on the economy,
energy market and financial market. Furthermore, climate news risks
might cause uncertainty in the economy, energy market and financial
market. This paper analyses the impact mechanism of climate news risk
on uncertainties from a time-varying perspective. The Wall Street
Journal (WSJ) climate change news index constructed by Engle et al.
(2020) is used to measure the climate news risk. The uncertainty in this
paper chiefly includes energy market uncertainty, economic policy un­
certainty and financial market uncertainty (Gozgor et al., 2016). The
time-varying parameter vector autoregression (TVP-VAR) models pro­
posed by Primiceri (2005) are used to analyse the time-varying effect of
climate news risk on the uncertainties. The three main contributions in
this paper are as follows: (1) to quantitatively describe the effect of
climate news risk on uncertainties, and further compare the difference of
the effect degree of climate news risk on uncertainties in the energy
market, economic policy and financial market; (2) to clarify the short-,
medium- and long-term effects of climate news risk on uncertainties
from the time-varying perspective and (3) to analyse the shocks of major
climate change events on the uncertainties.
The remaining structure of this paper is separated into sections. The
second section introduces the data sources and TVP-VAR models. The
third section presents the empirical results and discusses these results.
The fourth section presents the conclusion and policy implications.
2. Data sources and methods
2.1. Data sources
The WSJ climate change news index (NEWS) was obtained from
Engle et al. (2020) and measures investors’ attention to climate change.1
In this paper, the Chicago Board Options Exchange (CBOE) crude oil
volatility index (OVX), the U.S. economic policy uncertainty index
(EPU) and the CBOE volatility index (VIX) were used to measure energy
market uncertainty, economic policy uncertainty and financial market
uncertainty, respectively. The EPU index was extracted from Baker et al.
(2016) ,2 and OVX and VIX data were obtained from the Datastream
database. Due to data availability, the monthly data interval of this
research sample ranged from July 2008 to June 2017.
Fig. 1 shows the time trends of the WSJ climate news index and the
uncertainty indices from July 2008 to June 2017. The chart shows that
the WSJ climate news index has remained at a relatively stable level
since 2008. The peak of the climate news risk index mainly occurred at
the time points of major climate change-related events. The WSJ climate
news index shows peak values at the three time points of 2009/12,
2012/12 and 2015/12. This was mainly attributed to the three United
Nations (UN) Climate Change Conferences held at these time points: the
December 2009 UN Climate Change Conference in Copenhagen, the
December 2012 UN Climate Change Conference in Doha and the
December 2015 UN Climate Change Conference in Paris.
In this paper, the change rate of NEWS, OVX, EPU and VIX are
1
The monthly WSJ climate news index is obtained from http://pages.stern.
nyu.edu/~jstroebe.
2
The monthly EPU index is obtained from http://www.policyuncertainty.
com/us_monthly.html.

3
L. Ye Technological Forecasting & Social Change 178 (2022) 121586

obtained using a direct finite difference method Table 1. shows the Table 2
descriptive statistical analysis of the original data time series as well as Significant events for climate news risk index.
the series of their difference. Amongst these, the standard deviation of Date Significant events
EPU is the highest, followed by that of NEWS and OVX; the standard
1 2009/12 2009 Copenhagen UN climate change conference
deviation of VIX is the lowest. This indicates that during the study 2 2012/12 2012 Doha UN climate change conference
sample period, the variation range of EPU is the highest, followed by 3 2015/12 2015 Paris UN climate change conference
NEWS and OVX; the lowest variation range is observed for VIX. The
skewness, kurtosis and Jarque-Bera values are found for the difference
series of three variables, namely NEWS, OVX and VIX. The results show economic policy uncertainty index, energy market uncertainty index
that the difference series of these three variables display peak and thick- and climate news risk index, this paper constructs a climate news risk
tail features and do not follow normal distribution. Finally, the results of shock model as follows: yt = (VIX, EPU, OVX, NEWS).
the augmented Dickey–Fuller (ADF) unit root test show that the differ­ The MCMC algorithm is used for 10,000 sampling. Furthermore, the
ence series of each of the four variables are stationary. selected lag periods for the impulse response function of the climate
news risk shock on uncertainty indices are set as 1 month, 3 months and
6 months. Meanwhile, in order to investigate the shock of the climate
2.2. Climate news risk shock model news risk on uncertainty indices at the time points of major climate
change events, this paper selects three important time points of the
Before constructing the time-varying shock model of climate news climate news risk index. The selected time points of the major events are
risk, this paper constructs the VAR model of climate news risk shocks as shown in Table 2. The major climate change events selected in this paper
follows: are as follows: the December 2009 United Nations Climate Change
⎡ ⎤ ⎡ ⎤ ⎡ ⎤ Conference in Copenhagen, the December 2012 United Nations Climate
VIXt VIXt− 1 VIXt− p
⎢ EPUt ⎥ ⎢ EPUt− 1 ⎥ ⎢ EPUt− p ⎥ Change Conference in Doha and the December 2015 United Nations
A⎢ ⎥ ⎢ ⎥ ⎢ ⎥
⎣ OVXt ⎦ = B1 ⎣ OVXt− 1 ⎦ + ⋯ + Bp ⎣ OVXt− p ⎦ + Σεt (1) Climate Change Conference in Paris. Thus, this paper can capture the
NEWSt NEWSt− 1 NEWSt− p time-varying effect degree of climate news risk index on OVX, EPU and
VIX from the perspective of different lag periods and major climate
where A is a4 × 4 dimensional coefficient matrix, εt ∼ N(0,Ik ). Setting yt change events using the TVP-VAR models of climate news risk shock.
= [VIXt , EPUt , OVXt , NEWSt ] , Xt = Ik ⊗ (yt− 1 , ⋯yt− p ), where ⊗ indicates
′ ′ ′

3. Empirical results and analysis

the Kronecker product, formula (1) can be transformed into:

yt = Xt β + A− 1 Σεt (2) 3.1. Climate news risk shocks analysis

Referring to the time-varying parameter vector autoregression model
3.1.1. Preliminary results
proposed by Primiceri (2005), the above model can be transformed into
The optimal lag-order selection results of the TVP-VAR model are
a time-varying vector autoregression model with random volatility:
shown in Table 3. Based on the final prediction error (FPE) criterion, the
yt = Xt βt + A−t 1 Σt εt , t = p + 1, …n (3) Akaike information criterion (AIC) and the Hannan–Quinn (HQ) crite­
rion, the optimal lag order is set to 1 Table 4. shows the posterior mean
Furthermore, αt = (α21,t , α31,t , α32,t , α41,t , ⋯, αkk− 1,t ) is defined as a
′
value, standard deviation, Geweke value and inefficiency factor value
column vector formed by the accumulation of non-0 and 1 elements of for the parameters of the TVP-VAR model. As shown in Table 4, the
At , and ht = (h1t , ⋯, hkt ) ,hjt = logσ 2jt , j = 1,⋯,k, t = p + 1, ⋯, n represent posterior means of all parameters are within the 95% confidence in­
′

random volatility. All the time-varying parameters in the model are terval, and their Geweke values and inefficiency factor values are low
assumed to obey the first-order random walk, namely βt+1 = βt + μβt , Fig. 3. shows the autocorrelation coefficient, convergence trajectory and
αt+1 = αt + μαt , ht+1 = ht + μht . posterior density distribution of the samples. With an increase of
⎡ ⎤ ⎡ ⎡ ⎤⎤ simulation times, the autocorrelation coefficient of the samples con­
εt I 0 … 0 verges to zero, indicating that the sampling times set in this paper can
⎢ μβt ⎥ ⎢ ⎢ ⎥⎥
⎢ ⎥ ∼ N ⎢0, ⎢ 0 Σβ ⋱ ⋮ ⎥⎥ (4) eliminate the autocorrelation amongst the samples. By combining
⎣ μα t ⎦ ⎣ ⎣ ⋮ ⋱ Σα 0 ⎦ ⎦
Table 4 and Fig. 2, it can be concluded that the TVP-VAR model of
μht 0 ⋯ 0 Σh
climate news risk shock exhibits good reliability (Nakajima et al., 2011).
Fig. 3 shows the time-variation trend of the stochastic volatility of
where βp+1 ∼ N(μβ0 , Σβ0 ), αp+1 ∼ N(μα0 , Σα0 ), and hp+1 ∼ N(μh0 , Σh0 ).
the climate news risk index and the uncertainty indices. It can be seen
Σβ ,Σα ,Σh is a positive definite matrix, and it is assumed that the shocks of
that the volatility of the climate news risk index peaked at the end of
the time-point parameters are not correlated. Finally, referring to
2009 and gradually declined, peaking once more at the beginning of
Nakajima (2011), the Markov chain Monte-Carlo (MCMC) method is
2014 and the end of 2015. This came as a result of the December 2009
used to estimate the model and analyse the time-varying shocks of
United Nations Climate Change Conference held in Copenhagen, the
climate news risk on uncertainties.
Third U.S. National Climate Assessment released in May 2014 and the
Considering that the order of variables in the climate news risk shock
December 2015 UN Climate Change Conference held in Paris. The
model might affect the empirical results, the variables in the later order
volatility of the OVX peaked in early 2009, mid-2011 and early 2016.
have a lag effect on those in the first order. Based on the theoretical
This was primarily due to the U.S. subprime mortgage crisis in late 2008
transmission relationship between climate news risk index and uncer­
and 2009, the full eruption of the European debt crisis in mid-2011, and
tainty indices, the energy market uncertainty index has a lag effect on
international crude oil prices reaching their lowest point in early 2016.
economic policy uncertainty and financial market uncertainty.3 Eco­
The occurrence of these major events had a significant impact on the
nomic policy uncertainty has a lag effect on financial market uncer­
international crude oil market, resulting in a peak in the OVX index at
tainty. Therefore, in the order of financial market uncertainty index,
the time points of these major events. The EPU index peaked at the end
of 2008 and the VIX index peaked in early 2009, and this was primarily
3
due to the impact of the US subprime mortgage crisis in late 2008 and
This paper also uses the Granger causality test method to examine the
2009 on economic activity and the financial market.
causality of the above four variables, and the test results support the setting
order of variables in the model.

4
L. Ye Technological Forecasting & Social Change 178 (2022) 121586

Table 3
The results of lag-order selection.
Lag LogL LR FPE AIC SC HQ

0 − 1481.852 NA 3.26e+08 30.95524 31.06209* 30.99843

1 − 1452.430 55.77776 2.47e+08* 30.67563* 31.20987 30.89158*
2 − 1436.734 28.44967* 2.49e+08 30.68196 31.64359 31.07067
3 − 1423.810 22.34860 2.67e+08 30.74603 32.13506 31.30750
4 − 1413.735 16.58064 3.04e+08 30.86949 32.68590 31.60371
5 − 1407.969 9.009681 3.82e+08 31.08269 33.32649 31.98967
6 − 1397.569 15.38314 4.38e+08 31.19936 33.87055 32.27910
7 − 1379.939 24.60900 4.35e+08 31.16539 34.26398 32.41789
8 − 1369.355 13.89165 5.07e+08 31.27822 34.80420 32.70348
9 − 1364.227 6.303390 6.69e+08 31.50472 35.45809 33.10274
10 − 1349.453 16.92765 7.33e+08 31.53028 35.91104 33.30105
11 − 1331.552 19.01989 7.66e+08 31.49067 36.29883 33.43421
12 − 1316.754 14.49031 8.73e+08 31.51570 36.75125 33.63199

Note: ***, ** and * denote significance at the 1%, 5% and 10% levels, respectively.

uncertainty indices to climate news risk shock. Considering the timeli­

Table 4 ness of climate news risk, impulse responses at 1 month, 3 months and 6
Estimated results for selected parameters in the TVP-VAR model. months correspond to short-term, medium-term and long-term effects,
Parameter Mean Std. Dev. 95% L 95% U Geweke Inef. respectively. In general, the impulse response graphs differ amongst the
(Σβ )1 0.0228 0.0026 0.0184 0.0284 0.164 6.72 lag periods of 1 month, 3 months and 6 months, indicating that the effect
(Σβ )2 0.0228 0.0026 0.0184 0.0285 0.856 6.06 of climate news risk shock on the three types of uncertainty indices
(Σα )1 0.1013 0.053 0.045 0.2435 0.316 57.18 exhibits time-varying characteristics.
(Σα )2 0.0885 0.0356 0.0442 0.1847 0.456 71.29 Fig. 4(a) shows the impulse response of OVX to climate news risk
0.3781 0.1365 0.1639 0.6972 0.482 60.28
(Σh )1
shocks. It can be seen that in the short term, the climate news risk has a
(Σh )2 0.3806 0.1245 0.1741 0.6581 0.764 45.34
negative effect on OVX during the overall study sample period. This
indicates that the climate news risk has a restraining effect on the un­
3.1.2. Time-varying effects of climate news shocks on uncertainties at certainty of the energy market; the risk effect of climate news reduces
different lag periods the uncertainty of the energy market. In the medium term, the climate
In order to investigate the time-varying effect of climate news risk on news risk index has a negative effect on OVX. It has a medium-term
uncertainties at different lag periods, the impulse response functions of restraining effect on energy market uncertainty. At 6 months, the risk
different lag periods were obtained Fig. 4. shows the impulse responses effect degree of climate news tends to zero, indicating that the long-term
of uncertainty indices to climate news risk shock at different lag periods effect of climate news risk on the uncertainty of the energy market is
(1 month, 3 months and 6 months). The horizontal axis indicates the small. In general, the climate news risk shocks mainly have a negative
time, and the vertical axis indicates the impulse response function of impact on the uncertainty of the energy market in the short and medium

Fig. 2. Sample autocorrelations, sample paths and posterior densities for selected parameters in the TVP-VAR model.

5
L. Ye
Fig. 3. Time-varying characteristics of random volatility for the climate news risk index and the uncertainty indices.
Fig. 4. Time-varying impulse responses of uncertainty indices to WSJ climate news risk shocks at different lag periods.
terms. One reason for this might be that the rise of climate change risk
can accelerate the energy transition process, lowering the fossil energy
demand and limiting uncertainty in the fossil energy markets. In
particular, confronting the growing threat of climate change indicates
improved the investment in renewable energy. The increase in the
renewable energy investment reduces dependence on imported fossil
energy and consumption of fossil energy, thus curbing energy market
volatility to a certain degree.
Fig. 4(b) shows the impulse response of EPU to climate news risk
shocks. It can be seen that in the short term, the climate news risk has a
positive impact on EPU throughout the study sample period, indicating
that the climate news risk has a promoting effect on economic policy
uncertainty. This means that the effect of climate news risk increases the
economic policy uncertainty. In the medium term, the impulse response
curve of EPU to climate news risk shocks is positive with the exception of
the beginning of 2010. This indicates that the climate news risk has a
positive effect on the uncertainty of economic policy in the medium term
during most of the sample period. After 6 months, the effect degree of
climate news risk shocks tends to zero, indicating that the long-term
impact of climate news risk on EPU is small. In general, climate news
risk has a primarily positive impact on economic policy uncertainty in
the short and medium term. This may be caused by the fact that extreme
weather and climate change events can cause great economic losses.
Meanwhile, climate risk can bring uncertainty to economic develop­
ment. Therefore, climate risk shocks can lead to an increase in economic
policy uncertainty.
Fig. 4(c) shows the impulse response of VIX to climate news risk
shocks. A comparison of the effects of the climate news risk shock on VIX
at different lag periods, it can be seen that the shock effect of climate
news risk on VIX at 1 month is greater than those at 3 months and 6
months. In specific terms, the short-term effect of climate news risk
shocks is stronger than the medium- and long-term effects. In particular,
the shock effect of climate news risk essentially disappears at 6 months,
which means that the long-term shock effect of climate news risk on VIX
6
Technological Forecasting & Social Change 178 (2022) 121586
tends to zero. In the short term, climate news risk had a significant
negative effect on VIX before the beginning of 2013, indicating that the
climate news risk had a certain restraining effect on the uncertainty of
the financial market during this period. Climate news risk has had a
significant positive impact on VIX since the beginning of 2013, indi­
cating that climate news risk has a promoting effect on financial market
uncertainty. This was particularly true at the end of 2015, when the
promoting effect reached the highest level. In the medium term, climate
news risk had a negative effect on VIX before 2013 and has had a pos­
itive effect on VIX since 2013. In general, climate news risk shocks
mainly have a negative impact on VIX in the short and medium terms
before 2013 and a positive impact in the short and medium terms since
2013. This may be due to the fact that at the beginning of the sample
period, the increase in climate risk reduces the investment of fossil en­
ergy and carbon-heavy enterprises. To a certain extent, it restrains the
capital flow of fossil energy and carbon-heavy enterprises, thus
restraining the volatility of the financial market. As climate change has
attracted various countries, the increase in climate risk has gradually
raised people’s awareness of global warming. Meanwhile, the develop­
ment status of new energy has gradually improved, which facilitates the
gradual transfer of considerable capital to the investment of new energy.
This causes further stock market fluctuations, thus gradually increasing
the volatility of the financial market.
In general, the effect of climate news risk shocks on all uncertainty
indices at 1 month is significantly higher than those at 3 months.
Similarly, the climate news risk shocks to all uncertainty indices at 3
months are significantly higher than those at 6 months. In other words,
the effect of climate news risk shocks on uncertainties exists mainly in
the short and medium term. In this case, the short-term effect is greater.
On the other hand, when comparing the responses of different uncer­
tainty indices to climate news risk shocks, it was found that climate news
risk shocks have the greatest effect on EPU at the same lag periods. This
was followed by the effect on OVX. The least effect was observed on VIX.
L. Ye Technological Forecasting & Social Change 178 (2022) 121586

Fig. 5. Time-varying impulse responses of uncertainty indices to WSJ climate news risk shocks at specific time points.

3.1.3. Time-varying effects of climate news shocks on uncertainties at first period is from − 0.5 to 0. These results indicate that climate news
specific time points risk has the highest negative effect on the uncertainty of the energy
In order to further analyse the effect of climate news risk on un­ market in December 2012 and the lowest negative effect in December
certainties at different significant time points, this paper takes the major 2015.
events of climate change as the basis for selecting the time points. The Fig. 5(b) shows the impact of climate news risk shocks on EPU at
following three key time points were selected: the December 2009 UN different time points. At the three time points, it can be seen that the
Climate Change Conference in Copenhagen, the December 2012 UN impact of climate news risk on economic policy uncertainty is positive in
Climate Change Conference in Doha and the December 2015 UN Climate the first period, and it becomes negative in the second period. The
Change Conference in Paris. The effect of climate news risk shocks on response value gradually converges to 0 in the subsequent period. At the
uncertainties at different time points was subsequently analysed Fig. 5. time point of December 2009, the impact range of climate news risk
shows the impulse responses of uncertainties to climate news risk shocks shocks on economic policy uncertainty in the first period is from 0 to 1.
at these three major event points.
Fig. 5(a) shows the impact of climate news risk shocks on energy
market uncertainty at three different time points. As can be seen from Table A.1
the figure at the three time points, the impact of climate news risk on the Estimated results for selected parameters in the TVP-VAR model of CH negative
climate news risk shocks.
uncertainty of the energy market is negative in the first period. This
impact becomes positive in the second period, and the response value Parameter Mean Std. Dev. 95% L 95% U Geweke Inef.
gradually converges to zero in the subsequent period. At the time point (Σβ )1 0.023 0.0027 0.0184 0.0289 0.447 7.6
of December 2009, the impact range of climate news risk shocks on the (Σβ )2 0.0231 0.0026 0.0185 0.0287 0.399 6.48
uncertainty of the energy market in the first period ranges from − 0.6 to (Σα )1 0.0987 0.0537 0.0429 0.2418 0.001 104.33
0.0806 0.0294 0.0431 0.153 0.019 46.84
0. At the time point of December 2012, the impact range of climate news (Σα )2
(Σh )1 0.3824 0.1413 0.158 0.7012 0.736 59.62
risk shocks on the uncertainty of the energy market in the first period is (Σh )2 0.3909 0.1285 0.1756 0.674 0.439 57.02
from − 1 to 0. At the time point of December 2015, the impact range of
climate news risk shock on the uncertainty of the energy market in the

Fig. 6. The trend of WSJ and CH negative climate change news indices (Engle et al., 2020).

7
L. Ye
Fig. 7. Time-varying impulse responses of uncertainty indices to CH negative climate news risk shocks at different lag periods.
At the time point of December 2012, the impact range of climate news
risk shocks on economic policy uncertainty in the first period is from 0 to
1.5. At the time point of December 2015, the impact range of climate
news risk shocks on economic policy uncertainty in the first period is
from 0 to 1.3. These values indicate that climate news risk shocks have
the greatest positive impact on economic policy uncertainty in
December 2012 and the least positive impact in December 2009.
Fig. 5(c) shows the impact of climate news risk shocks on VIX at
different time points. As can be seen from the figure at the December
2009 and December 2012 time points, climate news risk shocks have a
negative impact on VIX in the first period, and this becomes a positive
impact in the second period. The response value gradually converges to
zero in the subsequent period. At the point of December 2015, the
impact of climate news risk shocks on VIX is positive in the first period,
and it then becomes negative in the second period. The response value
gradually converges to zero in the subsequent period. At the time point
of December 2009, the impact range of climate news risk shocks on
financial market uncertainty in the first period is from − 0.25 to 0. At the
time point of December 2012, the impact range of climate news risk
shocks on financial market uncertainty in the first period is from − 0.2 to
0. At the time point of December 2015, the impact range of climate news
risk shocks on financial market uncertainty in the first period is from 0 to
0.37. This indicates that climate news risk has the largest negative
impact on financial market uncertainty in December 2009 and the
largest positive impact on financial market uncertainty in December
2015. The reason may lie in the fact that the UN Climate Change Con­
ferences in December 2009 and December 2012 strengthened the signal
of carbon emission reduction. This restrained the great investments in
fossil energy and carbon-heavy sectors, thus curbing financial market
volatility. In December 2015, many countries had improved the devel­
opment status of new energy significantly, which facilitated great in­
vestments in new energy industries. This further increased the capital
flow of new energy, thus improving the volatility of the financial market.
3.2. Robustness analysis
To validate the robustness of the time-varying effect of climate news
risk shocks on uncertainties, the WSJ climate change news index was
replaced by the Crimson Hexagon’s (CH) negative sentiment climate
change news index constructed by Engle et al. (2020). According to
Engle et al. (2020), the WSJ climate news risk index is constructed under
the assumption that the discussion on climate change increases as
climate risk rises. The discussion on positive climate news can also be
seen as the rise of climate risk (Engle et al., 2020). Meanwhile, there is
only one data source for the WSJ climate news risk index, which covers
only WSJ. However, the CH negative climate change news index is
mainly based on negative sentimental news about climate change
8
Technological Forecasting & Social Change 178 (2022) 121586
(Engle et al., 2020). Furthermore, the data sources of the CH negative
climate change news index are more diverse (Engle et al., 2020) Fig. 6.
shows the trend of WSJ climate change news and CH negative climate
change news indices.4 It can be seen that the CH climate news risk index
was significantly higher than the WSJ index from July 2008 to the end of
2008. The trend of the two indices then remains consistent, and they
peak when major climate change events occur.
The optimal lag order of the TVP-VAR model for the robustness test is
set to 1 according to AIC Table A1. in the Appendix reports the
parameter estimation values of this TVP-VAR model Fig. A1. in the
Appendix shows the autocorrelation coefficient, convergence trajectory
and posteriori density distribution of the samples. Based on Table A1
and Fig. A1, it can be concluded that the constructed TVP-VAR model
has good reliability.
Fig. 7 shows the impulse responses of uncertainty indices to the CH
negative climate change news index Fig. 7.(a) shows the impulse
response of OVX to the CH negative climate change news index. The
results of the CH negative climate change news index shocks are
consistent with the results of the WSJ climate change news index shocks.
In specific terms, the CH negative climate news shocks have a negative
effect on energy market uncertainty in the short and medium term, and
the long-term effect is small Fig. 7.(b) shows the impulse response of
EPU to the CH negative climate change news index. The results of the CH
negative climate change news index are similar to those of WSJ climate
change news index shocks. As opposed to the results of the WSJ climate
change news index shocks, the CH negative climate change news index
shocks at 1 month have a negative effect on EPU at the end of 2010
Fig. 7.(c) shows the impulse response of VIX to the CH negative climate
change news index. The results of the CH negative climate change news
index at 1 month are similar to those of the WSJ climate change news
index. As opposed to the WSJ climate change news index shocks, the CH
negative climate change news index shocks have a positive effect on VIX
during the entire sample period at 3 months.
In general, the effect of the CH negative climate change news index
on uncertainties is virtually consistent with that of the WSJ climate
change news index at the same lag periods. The only exception lies in the
differences in the short-term shocks on EPU and the medium-term
shocks on VIX.
Fig. 8 shows the impulse responses of uncertainty indices to the CH
negative climate change news index at three major climate change
events Fig. 8.(a) shows the impulse response of OVX to the CH negative
climate change news index at the three time points. This is consistent
with the directions of WSJ climate change news index shocks Fig. 8.(b)
shows the impulse response of EPU to the CH negative climate change
news index at the three time points, and this is consistent with the di­
rections of WSJ climate change shocks in December 2009. However, this
is opposite to the directions of WSJ climate change shocks in December
4
The monthly CH negative climate news index is also obtained from http://
pages.stern.nyu.edu/~jstroebe.
L. Ye
Fig. 8. Time-varying impulse responses of uncertainty indices to CH negative climate news risk shocks at specific time points.
2012 and December 2015 Fig. 8.(c) shows the impulse response chart of
VIX to the CH negative climate change news index at three time points,
and this is consistent with the directions of WSJ climate change index
shocks.
In general, the effect of the CH negative climate news index on un­
certainty at the three aforementioned time points is consistent with most
of the empirical results of the WSJ climate change news index shocks.
The only exception lies in the fact that the shock results of the CH
negative climate news index on EPU in December 2012 and December
2015 are different from the WSJ climate change news index shocks. The
reason for the small difference in empirical results may be that the CH
negative climate change news index is primarily based on the negative
sentiment of climate news, while the WSJ climate change news index
does not distinguish between positive and negative climate change
sentiment. This also supports the robustness of the empirical results
pertaining to the WSJ climate change news index shocks.
4. Conclusions and policy implications
In this paper, TVP-VAR models were used to analyse the effect of
climate news risk on uncertainties. The analysis was primarily carried
out from two aspects: lag period shocks at 1 month, 3 months and 6
months and significant climate change event shocks. The main conclu­
sions are detailed as follows. First, the shocks of climate news risk on
uncertainties exhibited time-varying characteristics. Second, climate
news risk had a negative impact on the uncertainty of the energy market
in the short and medium terms, as well as a positive impact on economic
policy uncertainty in the short and medium terms. Furthermore, climate
news risk had a negative impact on the uncertainty of the financial
market in the short and medium terms before 2013 and has had a pos­
itive impact on the uncertainty of the financial market since 2013. The
long-term impact of climate news risk shocks on uncertainties was low.
Finally, the effect of climate news risk shocks on economic policy un­
certainty was the highest, followed by the shock effect on energy market
uncertainty. The effect of climate news risk shocks on financial market
uncertainty was the lowest. The directions of the shock effects on
financial market uncertainty differed with different significant climate
change events.
The conclusions obtained in this paper have certain implications for
policy makers and market investors. First, the increasing effect of eco­
nomic policy uncertainty caused by climate risk should be considered in
their decision framework. Second, climate risk, as a significant sources
9
Technological Forecasting & Social Change 178 (2022) 121586
of systemic risk, should be taken into account for financial policy
makers. In particular, the promotion effect of climate risk for financial
market uncertainty should be paid great attention. Finally, market in­
vestors must be aware of the financial market volatility caused by
climate change shocks and must take preventive measures to manage
financial market risk before the occurrence of major climate change
events.
This paper has some limitations. Referring to Engle et al. (2020), the
WSJ climate change news index and the CH negative climate news index
do not distinguish between climate change physical events and climate
change policy events. It is difficult to understand the different effects of
climate change physical events and climate policy events on un­
certainties. There is a new index that focuses on climate policy events,
namely climate policy uncertainty (CPU) index developed by Gavriilidis
(2021). In the future work, the detail impact mechanisms of climate
policy events on uncertainties will be investigated using the CPU index.
Author statement
The author confirms sole responsibility for the following: study
conception and design, data collection, analysis and interpretation of
results, and manuscript preparation.
Acknowledgements
Supports from the Youth Foundation of Humanities and Social Sci­
ences Research of Ministry of Education, China (Grant No.
20YJCZH215), China Postdoctoral Science Foundation (Grant No.
2019M662688), and the Fundamental Research Funds for the Central
Universities, Central China Normal University (Grant No.
CCNU20XJ016) are acknowledged.
Supplementary materials
Supplementary material associated with this article can be found, in
the online version, at doi:10.1016/j.techfore.2022.121586.
Appendix
Table A1
Fig. A1
L. Ye Technological Forecasting & Social Change 178 (2022) 121586

Fig. A.1. Sample autocorrelations, sample paths and posterior densities for selected parameters in the TVP-VAR model of CH negative climate news risk shocks.

References Huynh, T.D., Nguyen, T.H., Truong, C., 2020. Climate risk: the price of drought. J. Corp.
Finance 65, 101750.
Huynh, T.D., Xia, Y., 2021. Climate change news risk and corporate bond returns.
Auffhammer, M., 2018. Quantifying economic damages from climate change. J. Econ.
J. Financ. Quantit. Anal. 56 (6), 1985–2009.
Perspect. 32 (4), 33–52.
Ilhan, E., Sautner, Z., Vilkov, G., 2021. Carbon tail risk. Rev. Financ. Stud. 34 (3),
Baker, S.R., Bloom, N., Davis, S.J., 2016. Measuring economic policy uncertainty. Q. J.
1540–1571.
Econ. 131, 1593–1636.
Jiang, S., Deng, X., Liu, G., Zhang, F., 2021. Climate change-induced economic impact
Battiston, S., Mandel, A., Monasterolo, I., Schütze, F., Visentin, G., 2017. A climate stress-
assessment by parameterizing spatially heterogeneous CO2 distribution. Technol.
test of the financial system. Nat. Clim. Chang. 7 (4), 283–288.
Forecast. Soc. Change 167, 120668.
Bolton, P., Kacperczyk, M., 2021. Do investors care about carbon risk? J. Financ. Econ.
Lamperti, F., Bosetti, V., Roventini, A., Tavoni, M., 2019. The public costs of climate-
142 (2), 517–549.
induced financial instability. Nat. Clim. Chang. 9 (11), 829–833.
Burke, M., Hsiang, S.M., Miguel, E., 2015. Global non-linear effect of temperature on
Lamperti, F., Dosi, G., Napoletano, M., Roventini, A., Sapio, A., 2020. Climate change
economic production. Nature 527 (7577), 235–239.
and green transitions in an agent-based integrated assessment model. Technol.
Byers, E.A., Coxon, G., Freer, J., Hall, J.W., 2020. Drought and climate change impacts
Forecast Soc. Change 153, 119806.
on cooling water shortages and electricity prices in Great Britain. Nat. Commun. 11
Lemoine, D., Kapnick, S., 2016. A top-down approach to projecting market impacts of
(1), 1–12.
climate change. Nat. Clim. Chang. 6 (1), 51–55.
Campiglio, E., Dafermos, Y., Monnin, P., Ryan-Collins, J., Schotten, G., Tanaka, M., 2018.
Lu, S., Bai, X., Li, W., Wang, N., 2019. Impacts of climate change on water resources and
Climate change challenges for central banks and financial regulators. Nat. Clim.
grain production. Technol. Forecast Soc. Change 143, 76–84.
Chang. 8 (6), 462–468.
Mideksa, T.K., Kallbekken, S., 2010. The impact of climate change on the electricity
Carleton, T.A., Hsiang, S.M., 2016. Social and economic impacts of climate. Science 353
market: a review. Energy Policy 38 (7), 3579–3585.
(6304).
Moore, F.C., Diaz, D.B., 2015. Temperature impacts on economic growth warrant
Choi, D., Gao, Z., Jiang, W., 2020. Attention to global warming. Rev. Financ. Stud. 33
stringent mitigation policy. Nat. Clim. Chang. 5 (2), 127–131.
(3), 1112–1145.
Nakajima, J., 2011. Time-varying Parameter VAR Model With Stochastic volatility: An
Crecente, F., Sarabia, M., del Val, M.T., 2021. Climate change policy and entrepreneurial
overview of Methodology and Empirical Applications. Institute for Monetary and
opportunities. Technol. Forecast Soc. Change 163, 120446.
Economic Studies, Bank of Japan.
Diaz, D., Moore, F., 2017. Quantifying the economic risks of climate change. Nat. Clim.
Nguyen, J.H., Phan, H.V., 2020. Carbon risk and corporate capital structure. J. Corp.
Chang. 7 (11), 774–782.
Finance 64, 101713.
Dietz, S., Bowen, A., Dixon, C., Gradwell, P., 2016. Climate value at risk’ of global
Painter, M., 2020. An inconvenient cost: the effects of climate change on municipal
financial assets. Nat. Clim. Chang. 6 (7), 676–679.
bonds. J. Financ. Econ. 135 (2), 468–482.
Engle, R.F., Giglio, S., Kelly, B., Lee, H., Stroebel, J., 2020. Hedging climate change news.
Perera, A.T.D., Nik, V.M., Chen, D., Scartezzini, J.L., Hong, T., 2020. Quantifying the
Rev. Financ. Stud. 33 (3), 1184–1216.
impacts of climate change and extreme climate events on energy systems. Nat.
Eom, J., Edmonds, J., Krey, V., Johnson, N., Longden, T., Luderer, G., Riahi, K., Van
Energy 5 (2), 150–159.
Vuuren, D.P., 2015. The impact of near-term climate policy choices on technology
Pidgeon, N., Fischhoff, B., 2011. The role of social and decision sciences in
and emission transition pathways. Technol. Forecast Soc. Change 90, 73–88.
communicating uncertain climate risks. Nat. Clim. Chang. 1 (1), 35–41.
Fang, J., Lau, C.K.M., Lu, Z., Wu, W., Zhu, L., 2019. Natural disasters, climate change,
Piontek, F., Drouet, L., Emmerling, J., Kompas, T., Méjean, A., Otto, C., Rising, J.,
and their impact on inclusive wealth in G20 countries. Environ. Sci. Pollut. Res. 26
Soergel, B., Taconet, N., Tavoni, M., 2021. Integrated perspective on translating
(2), 1455–1463.
biophysical to economic impacts of climate change. Nat. Clim. Chang. 11, 563–572.
Foramitti, J., Savin, I., van den Bergh, J.C., 2021. Regulation at the source? Comparing
Primiceri, G.E., 2005. Time varying structural vector autoregressions and monetary
upstream and downstream climate policies. Technol. Forecast Soc. Change 172,
policy. Rev. Econ. Stud. 72 (3), 821–852.
121060.
Rosen, R.A., Guenther, E., 2015. The economics of mitigating climate change: what can
Gavriilidis, K. (2021). Measuring climate policy uncertainty. Available at SSRN: htt
we know? Technol. Forecast Soc. Change 91, 93–106.
ps://ssrn.com/abstract=3847388.
Rubtsov, A., Xu, W., Šević, A., Šević, Ž., 2021. Price of climate risk hedging under
Ghadge, A., van der Werf, S., Kara, M.E., Goswami, M., Kumar, P., Bourlakis, M., 2020.
uncertainty. Technol. Forecast. Soc. Change 165, 120430.
Modelling the impact of climate change risk on bioethanol supply chains. Technol.
Semeyutin, A., Gozgor, G., Lau, C.K.M., Xu, B., 2021. Effects of idiosyncratic jumps and
Forecast Soc. Change 160, 120227.
co-jumps on oil, gold, and copper markets. Energy Econ. 104, 105660.
Gozgor, G., Lau, C.K.M., Bilgin, M.H., 2016. Commodity markets volatility transmission:
Stern, P.C., Sovacool, B.K., Dietz, T., 2016. Towards a science of climate and energy
roles of risk perceptions and uncertainty in financial markets. J. Int. Financ. Mark.,
choices. Nat. Clim. Chang. 6 (6), 547–555.
Instit. Money 44, 35–45.
Takakura, J.Y., Fujimori, S., Hanasaki, N., Hasegawa, T., Hirabayashi, Y., Honda, Y.,
Hong, H., Li, F.W., Xu, J., 2019. Climate risks and market efficiency. J. Econom. 208 (1),
Lizumi, T., Kumano, N., Park, C., Shen, Z., Takahashi, K., Tamura, M., Tanoue, M.,
265–281.

10
L. Ye Technological Forecasting & Social Change 178 (2022) 121586

Tsuchida, K., Yokoki, H., Zhou, Q., Oki, T., Hijioka, Y., 2019. Dependence of Zhang, H., Liu, C., Wang, C., 2021. Extreme climate events and economic impacts in
economic impacts of climate change on anthropogenically directed pathways. Nat. China: a CGE analysis with a new damage function in IAM. Technol. Forecast Soc.
Clim. Chang. 9 (10), 737–741. Change 169, 120765.
Tol, R.S., 2009. The economic effects of climate change. J. Econ. Perspect. 23 (2), 29–51.
van Renssen, S., 2014. Investors take charge of climate policy. Nat. Clim. Chang. 4 (4),
Dr. Liping Ye works at College of Public Administration, Central China Normal University,
241–242.
Wuhan 430079, China. She got her PhD at Huazhong University of Science and Tech­
van Ruijven, B.J., De Cian, E., Wing, I.S., 2019. Amplification of future energy demand
nology in 2019. Her research covers broad areas of climate change, public policy and
growth due to climate change. Nat. Commun. 10 (1), 1–12.
health policy. She has published several articles in peer-reviewed journals.

11