The impact of climate attention on risk spillover effect in energy futures markets

Abstract

This study initially develops a risk spillover network within the energy futures market, subsequently analyzing the impacts of climate attention on the risk spillovers associated with individual contracts in this network. We construct a high-dimensional network of 19 futures contracts CoVaR based on the LASSO-VAR method. Furthermore, we construct a climate attention index using the search volume of the climate-related Baidu Index during the same period and use a random forest (RF) model to study its impact on the energy futures market. We find that the energy futures market has a significant risk spillover effect, and climate attention has a significant non-linear effect on risk spillover. In light of increasing climate attention, our RF regression analyses reveal a notable shift in the risk spillover of energy futures. Based on these findings, we recommend tailored management strategies to address this evolving trend effectively.