Climate change and stock market: a review

Abstract

Climate change-related events are having a growing impact on the economy and financial markets. However, it is still difficult to quantify how climate change affects the financial system. The purpose of this research is to provide an overview of the relationship between climate risk factors and the stock market. The review focuses on the regions and methodologies used based on the selected publications for the past five years. The results revealed that most studies focused on developed economies, like those in the US and Europe, and adopted time series and panel regression in the analysis. The findings imply that future studies may focus on a wider range of issues, including developing countries and more advanced techniques in the analysis. The study also showed that, based on the evidence currently available, little is known about how investors assess climate threats; hence, a future study may close this knowledge gap. However, since this research reviewed the selected studies for the last five years, it has several limitations. A comprehensive investigation is needed, especially regarding the potential impacts of the pandemic on the environment and how it could spread to the stock market.