Effects of the Paris Agreement and the COVID-19 Pandemic on Volatility Persistence of Stocks Associated with the Climate Crisis: A Multiverse Analysis

Working Paper
Climate Econometrics
Long Memory
Data Science

J.E. Vera-Valdés

O. Kvist




This paper evaluates the effect that the Paris Agreement (PA) and the COVID-19 pandemic had on the persistence of volatility in stocks associated with the climate crisis. Both brown stocks (those associated with increases in greenhouse gas emissions) and green stocks (the ones related to renewable energies) are analysed, and we compare their dynamics against stocks not necessarily associated with the global warming crisis. We find evidence that all brown and green stocks experienced a decrease in volatility persistence after the PA entered into force. In contrast, the persistence of volatility for stocks not associated with the climate crisis experienced an increase in persistence. Furthermore, we show that the COVID-19 pandemic increased volatility persistence for most stocks, regardless of whether they are associated with the climate crisis or not. The contrasting results could signal the benefit that international cooperation agreements, such as the PA, have on the financial stability of stocks associated with the climate crisis through the establishment of clear emission goals. Furthermore, a notable aim of this paper is to advance the use of multiverse analysis in econometric studies. Therefore, we detail how multiverse analysis can be used to show that our results are robust to bandwidth selection. In general, this paper opens up a new research agenda on the volatility stabilising mechanism of international treaties to tackle global warming. In particular, this paper supports the notion that international collaboration, such as the PA can help reduce volatility persistence, making it more likely to avoid the green swan.

The codes to replicate the results of this paper can be found here.


The paper can be downloaded here.