Climate Risk Transmissions to Commodity Markets: Evidence From a Mixed-Frequency Spillover Approach

Abstract

The relationship between climate risks and commodity markets remains insufficiently explored, especially when analyzed through the lens of high-frequency data. This study seeks to address this gap by investigating the spillover effects of global climate risks, both physical and transitional, on key commodity markets and employs a novel analytical framework. By utilizing newly developed climate risk indices alongside the innovative mixed-frequency spillover measure, this research combines high-frequency climate risk data with the responses of low-frequency commodity prices. Our results highlight notable spillover effects, demonstrating that climate risks serve as the primary drivers of spillovers to commodity markets in a mixed-frequency data context, whereas such effects are not observed within a common-frequency data environment. These findings have important implications for policy-makers and investors, indicating that current market analyses may not capture the influence of climate risk adequately.

Keywords

climate risk commodity markets mixed-frequency spillover common-frequency spillover C32 C58 Q40 G11

Get full access to this article

View all access options for this article.

References

Andersen

T. G.

Bollerslev

Diebold

F. X.

Labys

(2003). Modeling and forecasting realized volatility. Econometrica, 71(2), 579–625. https://doi.org/10.1111/1468-0262.00418

Bai

Wei

G. W.

X. F.

Zhang

S. Y.

(2021). Infectious disease pandemic and permanent volatility of international stock markets: A long-term perspective. Finance Research Letters, 40, Article 101709. https://doi.org/10.1016/j.frl.2020.101709

Banerjee

A. K.

(2024). Second-order moment risk connectedness across climate and geopolitical risk and global commodity markets. Economics Letters, 235, Article 111551. https://doi.org/10.1016/j.econlet.2024.111551

Bonato

Cepni

Gupta

Pierdzioch

(2023). Climate risks and realized volatility of major commodity currency exchange rates. Journal of Financial Markets, 62, Article 100760. https://doi.org/10.1016/j.finmar.2022.100760

Bua

Kapp

Ramella

Rognone

(2024). Transition versus physical climate risk pricing in European financial markets: A text-based approach. European Journal of Finance, 30(17), 2076–2110. https://doi.org/10.1080/1351847X.2024.2355103

Chatzopoulos

Domínguez

I. P.

Zampieri

Toreti

(2020). Climate extremes and agricultural commodity markets: A global economic analysis of regionally simulated events. Weather and Climate Extremes, 27(1), Article 100193. https://doi.org/10.1016/j.wace.2019.100193

Chen

Y. H.

Sharma

(2024). How much does climate-related risk impact stock and commodity markets: A comparative study of the US and China. Finance Research Letters, 62, Article 105134. https://doi.org/10.1016/j.frl.2024.105134

Cheng

Z. S.

M. C.

Sun

Y. Y.

Hong

Y. M.

Wang

S. Y.

(2024). Climate change and crude oil prices: An interval forecast model with interval-valued textual data. Energy Economics, 134, Article 107612. https://doi.org/10.1016/j.eneco.2024.107612

Cotter

Hallam

Yilmaz

(2023). Macro-financial spillovers. Journal of International Money and Finance, 133, Article 102824. https://doi.org/10.1016/j.jimonfin.2023.102824

10.

Dang

H.-A. N.

Khan

Ibbett

Doan

A.-T.

(2025). Investigating the social impact of green innovation: An exploratory study of Vietnamese organisations using “concept cards” interviewing. Journal of Asian Business and Economic Studies, 32(3), 160–173. https://doi.org/10.1108/jabes-12-2023-0497

11.

De Lipsis

Agnolucci

(2024). Climate change and the US wheat commodity market. Journal of Economic Dynamics and Control, 161, Article 104823. https://doi.org/10.1016/j.jedc.2024.104823

12.

Diebold

F. X.

Yilmaz

(2012). Better to give than to receive: Predictive directional measurement of volatility spillovers. International Journal of Forecasting, 28(1), 57–66. https://doi.org/10.1016/j.ijforecast.2011.02.006

13.

Ding

Y. G.

J. M.

(2023). Global vulnerability of agricultural commodities to climate risk: Evidence from satellite data. Economic Analysis and Policy, 80, 669–687. https://doi.org/10.1016/j.eap.2023.09.013

14.

Drabo

(2017). Climate change mitigation and agricultural development models: Primary commodity exports or local consumption production? Ecological Economics, 137, 110–125. https://doi.org/10.1016/j.ecolecon.2017.03.014

15.

Ghysels

(2016). Macroeconomics and the reality of mixed frequency data. Journal of Econometrics, 193(2), 294–314. https://doi.org/10.1016/j.jeconom.2016.04.008

16.

Henders

Ostwald

Verendel

Ibisch

(2018). Do national strategies under the UN biodiversity and climate conventions address agricultural commodity consumption as deforestation driver? Land Use Policy, 70, 580–590. https://doi.org/10.1016/j.landusepol.2017.10.043

17.

Iliyasu

Sanusi

A. R.

(2024). Climate change's impact on commodity prices: A new challenge for monetary policy. Portuguese Economic Journal, 23(2), 187–212. https://doi.org/10.1007/s10258-023-00237-2

18.

Jia

S. H.

Chen

X. H.

Han

L. Y.

Jin

J. Y.

(2023). Global climate change and commodity markets: A hedging perspective. Journal of Futures Markets, 43(10), 1393–1422. https://doi.org/10.1002/fut.22416

19.

Lesinger

Tian

Leisner

C. P.

Sanz-Saez

(2020). Impact of climate change on storage conditions for major agricultural commodities across the contiguous United States. Climatic Change, 162(3), 1287–1305. https://doi.org/10.1007/s10584-020-02873-5

20.

Lewis

Witham

(2012a). Agricultural commodities and climate change. Climate Policy, 12(sup01), S53–S61. https://doi.org/10.1080/14693062.2012.728790

21.

Lewis

Witham

(2012b). Manufactured commodities and climate change. Climate Policy, 12(sup01), S62–S72. https://doi.org/10.1080/14693062.2012.728793

22.

H. J.

Huang

X. Y.

Zhou

D. H.

Guo

L. L.

(2023). The dynamic linkages among crude oil price, climate change and carbon price in China. Energy Strategy Reviews, 48, Article 101123. https://doi.org/10.1016/j.esr.2023.101123

23.

X. F.

Wei

G. W.

Bai

Wei

Liang

(2021). Return connectedness among commodity and financial assets during the COVID-19 pandemic: Evidence from China and the US. Resources Policy, 73, Article 102166. https://doi.org/10.1016/j.resourpol.2021.102166

24.

Lin

B. Q.

Chen

Y. Y.

Gong

(2024). Stress from attention: The relationship between climate change attention and crude oil markets. Journal of Commodity Markets, 34, Article 100399. https://doi.org/10.1016/j.jcomm.2024.100399

25.

Liu

Y. T.

Wei

Wang

Liu

(2022). International stock market risk contagion during the COVID-19 pandemic. Finance Research Letters, 45, Article 102145. https://doi.org/10.1016/j.frl.2021.102145

26.

Lyu

Qin

F. S.

Wei

Kong

M. Z.

(2024). Does mixed frequency variables help to forecast value at risk in the crude oil market? Resources Policy, 88, Article 104426. https://doi.org/10.1016/j.resourpol.2023.104426

27.

Lyu

Y. J.

Tuo

S. W.

Wei

Yang

(2021). Time-varying effects of global economic policy uncertainty shocks on crude oil price volatility: New evidence. Resources Policy, 70, Article 101943. https://doi.org/10.1016/j.resourpol.2020.101943

28.

Mubenga-Tshitaka

J. L.

Mwamba

J. W. M.

Dikgang

Gelo

(2023). Risk spillover between climate variables and the agricultural commodity market in East Africa. Climate Risk Management, 42, Article 100561. https://doi.org/10.1016/j.crm.2023.100561

29.

Nam

(2021). Investigating the effect of climate uncertainty on global commodity markets. Energy Economics, 96, Article 105123. https://doi.org/10.1016/j.eneco.2021.105123

30.

Nel

Gupta

Wohar

M. E.

Pierdzioch

(2024). Climate risks and predictability of commodity returns and volatility: Evidence from over 750 years of data. Climate Change Economics, 15(4), Article 2450003. https://doi.org/10.1142/S2010007824500039

31.

Raza

S. A.

Khan

K. A.

(2024). Climate policy uncertainty and its relationship with precious metals price volatility: Comparative analysis pre and during COVID-19. Resources Policy, 88, Article 104465. https://doi.org/10.1016/j.resourpol.2023.104465

32.

Salisu

A. A.

Isah

Oloko

T. O.

(2024). Technology shocks and crude oil market connection: The role of climate change. Energy Economics, 130, Article 107325. https://doi.org/10.1016/j.eneco.2024.107325

33.

Sarker

P. K.

Bouri

Marco

C. K. L.

(2023). Asymmetric effects of climate policy uncertainty, geopolitical risk, and crude oil prices on clean energy prices. Environmental Science and Pollution Research International, 30(6), 15797–15807. https://doi.org/10.1007/s11356-022-23020-w

34.

Shahbaz

Sheikh

U. A.

Tabash

M. I.

Jiao

Z. L.

(2024). Shock transmission between climate policy uncertainty, financial stress indicators, oil price uncertainty and industrial metal volatility: Identifying moderators, hedgers and shock transmitters. Energy Economics, 136, Article 107732. https://doi.org/10.1016/j.eneco.2024.107732

35.

Stokeld

Croft

S. A.

Green

J. M. H.

West

C. D.

(2020). Climate change, crops and commodity traders: Subnational trade analysis highlights differentiated risk exposure. Climatic Change, 162(2), 175–192. https://doi.org/10.1007/s10584-020-02857-5

36.

Tang

C. H.

Lee

Y. H.

Liu

H. C.

Zeng

G. G.

(2024). Exploring the unpredictable nature of climate policy uncertainty: An empirical analysis of its impact on commodity futures returns in the United States. Journal of Futures Markets, 44(7), 1277–1292. https://doi.org/10.1002/fut.22510

37.

Tian

Long

S. B.

Z. X.

(2022). Asymmetric effects of climate policy uncertainty, infectious diseases-related uncertainty, crude oil volatility, and geopolitical risks on green bond prices. Finance Research Letters, 48, Article 103008. https://doi.org/10.1016/j.frl.2022.103008

38.

Wang

K. H.

Kan

J. M.

Qiu

L. H.

S. L.

(2023). Climate policy uncertainty, oil price and agricultural commodity: From quantile and time perspective. Economic Analysis and Policy, 78, 256–272. https://doi.org/10.1016/j.eap.2023.03.013

39.

Wei

Liu

Lai

X. D.

(2017). Which determinant is the most informative in forecasting crude oil market volatility: Fundamental, speculation, or uncertainty? Energy Economics, 68, 141–150. https://doi.org/10.1016/j.eneco.2017.09.016

40.

Wei

Qin

S. K.

X. F.

Zhu

Wei

G. W.

(2019). Oil price fluctuation, stock market and macroeconomic fundamentals: Evidence from China before and after the financial crisis. Finance Research Letters, 30, 23–29. https://doi.org/10.1016/j.frl.2019.03.028

41.

Xiang

D. L.

Asl

M. G.

Isfahani

M. N.

Vasa

(2024). Would really long-only climate-transition strategies in commodities bring lower market risk for sustainable markets in the long run? The Islamic sustainable market versus the global sustainability leaders. Economic Analysis and Policy, 82, 1271–1295. https://doi.org/10.1016/j.eap.2024.05.012

42.

Yan

W. L.

Cheung

(2024). Connectedness among Chinese climate policy uncertainty, exchange rate, Chinese and international crude oil markets: Insights from time and frequency domain analyses of high order moments. The North American Journal of Economics and Finance, 73, Article 102175. https://doi.org/10.1016/j.najef.2024.102175

43.

Zhang

H. W.

Hong

H. J.

Ding

S. J.

(2023). The role of climate policy uncertainty on the long-term correlation between crude oil and clean energy. Energy, 284, Article 128529. https://doi.org/10.1016/j.energy.2023.128529

44.

Zheng

(2024). Government environmental attention and enterprise greenwashing behavior: Evidence from China. Journal of Asian Business and Economic Studies, 31(5), 392–403. https://doi.org/10.1108/jabes-03-2024-0144