Climate Risks and Sovereign Bond Markets in Emerging Economies

Vanja Piljak
University of Vaasa, Finland

This study examines the impact of physical and transition climate risks on the sovereign bond markets in emerging economies. The focus is on media-based climate risks that are measured in terms of media concerns and news about climate change. The sample includes both USD and local currency denominated sovereign bond markets on the aggregate, regional, and country levels. Further analysis considers the subsamples based on ESG criteria, credit quality, and maturity. The main hypothesis is that increases in climate-related risks are associated with lower emerging market sovereign bond returns. Furthermore, a country-level climate vulnerability is analyzed as an important dimension shaping climate-risk pricing in emerging markets. Returns on sovereign bonds issued by countries with higher climate vulnerability react more strongly to both physical and transition climate risks. The study provides new evidence about pricing of climate risks in sovereign bond markets of emerging economies.

Vanja Piljak is Associate Professor of Finance at the University of Vaasa, and Adjunct Professor in International Finance at the University of Jyväskylä in Finland. She obtained a PhD in Finance at the University of Vaasa in 2013. Her research has been published in journals such as Journal of Empirical Finance, European Financial Management, Journal of International Financial Markets, Institutions and Money, International Review of Financial Analysis, Emerging Markets Review, and Journal of Asset Management. She serves as Editor in Multinational Finance Journal, Associate Editor in the Research in International Business and Finance, and Associate Editor in International Review of Economics and Finance. Her research interests include green and climate finance, international finance, financial markets, emerging markets finance, portfolio management, and political risk. She has been a visiting scholar at the University of St. Gallen in Switzerland, IÉSEG School of Management in France, Cyprus University of Technology, IPAG Business School in Paris, and the Auburn University in the USA.

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