How do significant climate events and media coverage influence the returns and volatility of commodities

Abstract

I propose a different approach to measure all commodities behaviour when affected by global effects of climate change. The study is divided in two different approaches to analyse that. In the first one, we started by calculate the global common volatility of all commodities. And then, a text-based proxies of climate change news is project onto climate-related shocks. Finally, the commodities volatility shocks are projected on the variation of that climate index. In the second approach, the commodities common returns (obtained through a principal component analysis (PCA)) are projected on the variation of that climate index. I show that for commodities in general, rising concerns regarding climate change are not making commodities prices move at a global scale, controlling for shocks to the agriculture, oil, gold and silver prices, the US stock market and commodities markets. However, we see that specific groups of commodities are more affected than others. The group most impacted is the energy commodities. Therefore, the direction and intensity of influence vary depending on the commodity and the time span that we are analysing. Data from the period following the Paris Agreement indicate that climate-related news now exerts a different influence on commodities, making the climate index a significant factor in global commodity volatility for all commodities. Lastly, the findings show that climate news is starting to affect the commodities market, most notably after important climate meetings.

Date of Award	30 Jan 2025
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Susana Campos Martins (Supervisor)