Abstract

This study examines the relationship between greenhouse gas (GHG) emissions and stock market volatility in the Eurozone from 2000 to 2023. The analysis is driven by increasing concerns regarding climate related financial risks, investigating whether various types of emissions induce financial market instability and whether this relationship is influenced by the economic frameworks and climate policy contexts. Utilizing annual panel data from 20 Eurozone countries, stock market volatility is assessed by a Dynamic Conditional Correlation Generalized Autoregressive Conditional Heteroskedasticity (DCC-GARCH) framework, which accounts for time-varying volatility and inter-market dependence. The empirical strategy integrates pooled OLS, fixed-effects models, and instrumental-variables Generalized Method of Moments (GMM) estimations to tackle issues of unobserved heterogeneity and endogeneity. The findings indicate that carbon dioxide emissions do not consistently account for variations in stock market volatility when controlling for country specific effects. On the other hand, nitrous oxide emissions show a strong and statistically significant link to volatility in all model specifications. This suggests that markets may see non CO₂ emissions as a separate source of environmental and regulatory risk. The results show that there is a significant sectoral difference, which means that sectoral GDP composition should be taken into account while assessing the effect of different emissions on stock market volatility. As, in economies with dominant agricultural and industrial sectors, emissions have a positive relationship with stock market volatility. And in economies where services are dominant, emissions have a negative relationship with stock market volatility. Using total greenhouse gas emissions to do robustness checks backs up these patterns. Policy variables like the Paris Agreement dummy show how policy changes affect volatility especially on the long run. In general, the study shows that greenhouse gas emissions have a conditional and systematic effect on the volatility of financial markets, depending on the sectoral composition of GDP and long term climate policy signals. These findings enhance the climate finance literature by emphasizing the necessity of disaggregating emissions and considering economic structure in the evaluation of climate-related financial risks. The results have significant ramifications for policymakers and investors aiming to mitigate financial stability risks associated with the transition to a low carbon economy.

School

School of Business

Department

Management Department

Degree Name

MS in Finance

Graduation Date

Winter 2-15-2026

Submission Date

1-21-2026

First Advisor

Dr. Tarek Eldomiaty

Committee Member 1

Dr. Tarek Eldomiaty

Committee Member 2

Dr. Jasmin Fouad

Committee Member 3

Dr. Islam Azzam

Extent

44 P.

Document Type

Master's Thesis

Institutional Review Board (IRB) Approval

Not necessary for this item

Disclosure of AI Use

Other

Other use of AI

proofreading and language adjustments

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