Abstract
The increasing concerns about climate change have led to a wide range of climate risks across capital markets. This paper uses ESG stock indices in six advanced economies to investigate the patterns of cross-country risk spillovers and then explores the determinants of the dynamic relationships across these indices. This paper also introduces three indexes of climate transition risks to investigate their dynamic relationship with the cross-country risk spillovers. The results show that ESG indices in European markets, such as Germany and France, are the main risk contributors, whereas the Japanese and Canadian markets are net risk receivers. We also find that the cross-country risk spillovers of ESG stock indices are sensitive to climate transition risk, with technology transition risk showing the strongest impact. Moreover, the cross-country risk spillovers are very sensitive to various types of global or major national climate actions and major extreme shocks to the financial markets.
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