Do Climate Risks Affect Stock Markets? Quantile Connectedness Analysis for Major European Economies

This study examines the interconnectedness between climate-related risks and Europe's five major stock markets, which aims to become the first continent with a net-zero emissions balance with daily data from April 16, 2013, to December 29, 2023.We employ two methodologies: Quantile Connectedness to investigate the impact of climate risks on stock market volatility in different market circumstances and Quantile Time-Frequency Connectedness to examine the short-and long-term spillover effects.Our results indicate that transition and physical risks have asymmetric effects on market indices, which are particularly pronounced during crisis periods.The study emphasizes that European markets are heterogeneous with respect to climate risks and that these differences create systemic risk diversification.Therefore, strategies to address climate risks need to be tailored to country specificities.