Asymmetric spillovers of climate policy uncertainty on financial markets – Evidence from China

Climate change is one of the greatest challenges of the 21st century, with its uncertainty significantly impacting financial stability. This study examines the spillover effects of China’s climate policy uncertainty on the stock, money, bond, foreign exchange and futures markets, using data from October 2006 to August 2024 and applying the QVAR-DY spillover index method. The findings reveal: (1) Extreme conditions amplify the spillover effects of China’s climate policy uncertainty on financial markets, especially during market booms. (2) The static analysis shows that under normal conditions, the largest spillovers are seen in the bond and futures markets. Under extreme conditions, the bond market is the most affected. Dynamic analysis shows that spillovers increase significantly during climate events (Copenhagen Summit, Carbon Peaking and Carbon Neutrality Goals). During market downturns, the bond market is impacted most; during market booms, the money market is more susceptible. (3) Net spillover analysis finds significant positive net spillovers to financial sub-markets during market booms. The findings guide efforts to manage climate policy uncertainty and reduce systemic financial risks.