Stress from attention: The relationship between climate change attention and crude oil markets

Abstract

Investors' focus on specific topics could translate into actual trading behavior, subsequently influencing market prices. Within the crude oil market, the issue of climate change risk arising from carbon emissions has garnered considerable attention recently, as investors' search behavior regarding this topic may impact crude oil prices. Based on the search information provided by Google, this paper employs quantile and quantile-on-quantile regression (QQR) methods to examine the relationship between investors' attention to climate change risk and crude oil futures price returns. The results reveal the following: (1) Simultaneous opposite correlations are observed, with a significantly positive relationship between attention and returns during high returns and a significantly negative relationship during periods of low returns. The correlation between the two exhibits considerable variation across different market performances. (2) A significant negative correlation exists mainly between attention to physical and opportunity risk and returns, while positive correlations exist mainly between attention to regulatory risk and returns. (3) Higher levels of climate change attention intensify these effects, as evidenced by an increase in the absolute value of the regression coefficients. The findings of this study can serve as a reference for investment institutions and policymakers in constructing investment portfolios and managing the impact of climate risk.