Climate risk and financial market interdependence in the SADC region: A multiscale analysis

Abstract

The present study examines the heterogenous impact of various climate variables on the Southern African Development Community (SADC) nations financial markets. It shows that different climate factors induce asymmetric stock market volatility across SADC. The transfer entropy estimates confirm that the impact of different climate variables on SADC nations financial markets is heterogeneous, segmented, and influenced by local factors. Further, the wavelet coherence results confirm the presence of asymmetric lag/lead effects over different time horizons across the SADC nation financial markets. Overall, the results show the importance of both short- and long-term climate-finance risk assessment and management measures. Moreover, they highlight the need for prudential policies, regulations, disclosure requirements, and stress testing specific to the SADC region. • The impact of different climate variables on the SADC nations financial markets is heterogeneous, segmented, and influenced by local factors • The study estimates confirm the presence of asymmetric lag/lead effects over different time horizons across the SADC nation financial markets • The study emphasises on both the short- and long-term climate-finance risk assessment and management measures