Climate risk and Chinese stock volatility forecasting: Evidence from ESG index

Abstract

This study employs a generalised autoregressive conditional heteroscedasticity mixed data sampling model (GARCH-MIDAS) to explore the forecasting performance of Chinese climate uncertainty (CU), Chinese climate policy uncertainty (CEU), Chinese economic policy uncertainty (CEPU), and US climate policy uncertainty (UCU) in both CSI 300 ESG and SSEC index volatility forecasting. The empirical results indicate that CU and CEU can significantly drive CSI 300 ESG volatility and outperform CEU and UCU. This may be caused by investors paying more attention to climate risk with the advent of the ESG score.