Extreme climate shocks and tail risk transmission in ENSO-affected financial markets: a quantile–time–frequency perspective

This study investigates how extreme climate shocks, proxied by the Southern Oscillation Index (SOI), influence risk transmission across ENSO-affected financial markets. To capture the nonlinear, state-dependent, and time-scale-specific nature of climate–financial interactions. The empirical results reveal several key findings. First, risk spillovers exhibit pronounced time variation and quantile heterogeneity, with systemic connectedness intensifying substantially under extreme market conditions, indicating a clear tail-risk amplification effect. Second, the U.S. market consistently acts as a dominant transmitter of risk, whereas emerging markets primarily function as net receivers, although their roles evolve dynamically over time. Third, the impact of climate shocks is highly state-dependent, with marginal effects significantly amplified in medium-to-high quantile regimes, forming a locally reinforced asymmetric dependence structure. Finally, the SOI–market linkage is mainly concentrated in low-frequency components, indicating that ENSO-related shocks are associated with persistent rather than short-lived financial transmission. These findings imply that climate-related financial risk monitoring should account for tail-state spillovers and low-frequency transmission, offering useful signals for portfolio risk management and macroprudential supervision.