Abstract
We examine the impact of physical climate risks on energy markets in China, distinguishing between traditional energy and new energy stock markets, and the energy commodity market, utilizing a time-varying parameter vector autoregressive model with stochastic volatility (TVP-SV-VAR). Specifically, we investigate the dynamic effects of five specific subtypes of physical climate risks, namely waterlogging by rain, drought, typhoon, cryogenic freezing, and high temperature, on WTI oil prices and coal prices. The findings reveal that these physical climate risks exhibit time-varying similar effects on the returns of traditional energy and new energy stocks, but heterogeneous effects on the returns of WTI oil prices and coal prices. Finally, we categorize and examine the impact of both acute and chronic physical risks on the energy commodity market.
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