How Climate Risks Affect Stock Markets in Emerging Economies

Imagine a world where stock markets are not just swayed by economic news, but also by the weather and climate policies. This study dives into how stock returns in big emerging economies like Brazil, Russia, India, China, and South Africa react to two types of climate risks: physical ones (like natural disasters) and transition ones (like climate policy uncertainties). The researchers checked out how often natural disasters happened, how many people were affected, and if temperatures or rainfall were out of the ordinary. To look at transition risks, they used two measures of climate policy uncertainty. First, they analyzed data from all these countries together, using a model that looks at past and present data. Then, they zoomed in on each country separately, using a similar model on monthly data from 2000 to 2023.

The results? Transition climate risks can really hurt stock returns, both in the short and long run, across the board. But it's not the same for physical climate risks. In China, India, and South Africa, they have a big, negative impact. But in Brazil and Russia, it's not as bad. So, investors, regulators, and policymakers, take note! The impact of climate risks on stock markets isn't one-size-fits-all. It's different from country to country. Maybe it's time to consider climate risks more seriously when making investment and policy decisions. After all, the weather and climate policies aren't going anywhere.

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