Is Heterogeneity Relevant? - Climate Risks and Forecasting Stock Returns Across Different Country Types

My research project seeks to add to the rapidly emerging field of 'Climate Finance', looking specifically at whether

climate risks have predictive power in relation to forecasting future stock market returns. My research will differentiate

from the incumbent literature in two key ways, first, by extending existing research methods to unexplored country types, such as emerging market economies and countries particularly vulnerable to climate change. In so doing, direct comparisons between these types of countries and advanced economies can be made for the first time, illuminating the

varying impacts of climate change on their respective equity markets and the ability of these markets to 'price in' climate risks. Second, my research project will, to my knowledge, be the first to investigate whether the predictive power of

climate risks varies between the wider stock market and the stocks of public-traded real estate companies. This is useful

in understanding if climate change has a disproportionate impact on the real estate sector relative to the wider economy. This research will rely on time series data and forecasting techniques, using both in-sample and out-of-sample tests as well as ML methods to detect potential non-linear relationships. In examining the unique challenges faced by different

country types and sectors, this research project is expected to offer invaluable insights for investors, policymakers, academics, and real estate industry participants.