Analysis demonstrates climate sentiment influences volatility in green equities, highlighting biodiversity's role.
We study the predictive role of climate sentiment on the volatility of green equities. Utilizing news-based measures of climate and biodiversity risks and high-frequency ETF data, we document a significant volatility effect of climate sentiment in green equities. While market attention to climate change is more important at shorter forecast horizons, attention to developments regarding biodiversity loss is a stronger predictor of volatility at longer forecast horizons. Economic analysis further shows that climate-focused investors can significantly improve the risk and return tradeoff in their green investment strategies by incorporating climate and biodiversity risk proxies in their volatility forecasting models.
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Demirer et al. (2025) studied this question.
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