Attention to climate change and eco-friendly financial-asset prices: A quantile ARDL approach

Abstract

In recent years, heightened global attention to climate change threats has spurred a rising tide of investors towards eco-conscious investment alternatives, reflecting a persistent urgency to align financial activities with sustainability objectives. This paper examines the potential role of people's attention to climate change concerns in explaining the price dynamics of various environmentally friendly financial assets, including solar energy stocks, clean energy stocks, sustainable stocks, low-carbon footprint stocks, and green bonds. The sample period is from January 03, 2014 to March 08, 2024. The principal component analysis is used to construct a proxy indicator for climate change-related attention, while the quantile ARDL approach is adopted to assess the relevance of this attention not only across short- and long-term horizons but also amidst normal, bearish, and bullish market conditions. The results reveal that eco-friendly financial assets are sensitive to public focus on climate change in the short run. The observed sensitivity, nonetheless, tends to fade away over the long term. For most assets examined, the magnitude of this sensitivity is not symmetric across quantiles; rather, it appears to vary depending on the prevailing market states. Our findings bear important implications for both investors and policymakers.