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

This paper evaluates the effect of recent global events on the persistence of volatility of financial assets. We find evidence that the Paris Agreement had a different effect on stocks associated with the climate crisis than on general stocks. The persistence of volatility of stocks associated with the climate crisis decreased after the Paris Agreement, while it generally increased for other types of stocks. The effect of the Paris Agreement is notable in the sense that we find that the COVID-19 pandemic increased the persistence of volatility 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 Paris Agreement, have on the financial stability of stocks associated with the climate crisis through the establishment of clear goals for greenhouse gas emissions. 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 estimator and bandwidth selection. 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 can help reduce the persistence of financial volatility, making it more likely to avoid the green swan.