This study investigates the effect of climate change on Asian stock markets using Generalized Autoregressive Conditional Heteroskedasticity variant of Mixed Data Sampling (GARCH-MIDAS) model. The results reveal that long-term stock return volatility of about 40% of Asian stock markets are unaffected by climate change. This implies that about 40% of investments in the Asian stock markets are insensitive to climate change financing. More awareness about investment in climate-oriented stocks is recommended.

In this study, we pursue two main innovations. First, we evaluate the predictive value of climate policy uncertainty (CPU) for oil market volatility. Second, we demonstrate how an investor can exploit the information contents of CPU to gain higher returns. We find that increased values of CPU heighten crude oil market risk, while higher forecast gains are achieved in a model that accommodates CPU. We further show that observing CPU offers higher portfolio returns than ignoring it.