Time-frequency tail risk spillover between ESG climate and high-carbon assets: The role of economic policy uncertainty and financial Stress

This study proposes the multiscale R2 decomposed connectedness approach to investigate the time-frequency contemporaneous and lagged risk spillover between ESG climate and high-carbon assets. We further track the time-varying predictive power of economic policy uncertainty (EPU) and financial stress (FSI) for risk contagion. In the risk connectedness between ESG and highcarbon assets, contemporaneous spillovers dominate in the short term, while lagged spillovers increase over longer timescales. Furthermore, EPU has better predictive power for long-term risk spillover, while FSI excels in forecasting short-term risk spillover. Both exhibit superior performance in predicting contemporaneous risk contagion.