Abstract / Description of output
This study investigates the impact of climate policy uncertainty (CPU) on energy and metal commodity futures markets by employing quantile regression, which accounts for various (bearish, normal, and bullish) markets. Our results reveal that the impact of CPU shocks is heterogeneous and market condition-specific. Particularly, CPU exerts a significantly negative effect on all commodities, except natural gas, in a bearish market. Under a normal market, the impact of CPU on energy returns varies across commodities whereas for a bullish market, the CPU effect is mixed. The results also reveal natural gas to be a good hedge instrument for climate policy risk. We further conducted channel analysis using the theory of storage and hedging pressure hypothesis. The key finding reveals inventory level as the transmission channel of climate policy risk. Our findings have implications for the inventory management strategies of producers and suggest that regulators should consider market-based policies in their decarbonization efforts.
Original language | English |
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Pages (from-to) | 1694-1709 |
Number of pages | 16 |
Journal | Journal of futures markets |
Volume | 44 |
Issue number | 10 |
Early online date | 23 Jul 2024 |
DOIs | |
Publication status | Published - Oct 2024 |
Keywords / Materials (for Non-textual outputs)
- commodity futures
- climate policy risk
- energy
- metals
- quantile-channel analysis