Abstract
This paper estimates the effects of climate risks on the stock returns in China, differentiating between non-fossil and fossil fuel firms, using a time-varying parametric vector autoregressive (TVP-VAR) model. The news-based climate physical risk (CPR) and climate transition risk (CTR) indexes for China are constructed. The results show that both types of climate risks have time-varying and differential effects on the returns of non-fossil and fossil fuel stocks. The differential effects are associated with investor preference and cash-flow effects. Besides, CTR contributes more connectedness to the return premium between the two stock types than CPR.
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