A1443
Title: Measuring the impact of biodiversity loss on financial markets: A CoVaR approach
Authors: Lidia Sanchis-Marco - University of Castilla-La Mancha (Spain) [presenting]
Laura Garcia-Jorcano - Universidad de Castilla-La Mancha (Spain)
Abstract: Combining biodiversity data is conducted with sector and system returns, a quantile regression analysis of the impact of physical and transition risks associated with biodiversity loss on extreme sector profitability and losses, and system losses, as well as the impact of sector losses and profits on biodiversity loss. To this end, a world biodiversity index is constructed, and a risk management measure is used to capture its extreme loss values over time. Based on a systemic risk measure by another study, a novel approach is proposed to measure financial risk conditional on biodiversity loss. This method allows the creation of a financial risk measure called CoBiodiversity that captures the dependence of extreme losses and profits of different sectors and system losses on changes in biodiversity loss at extreme quantiles and vice versa. Related market measures are also introduced called DeltaCoBiodiversity for each sector and the system exposure to biodiversity loss and ExposureCoBiodoversity to assess the impact of sector profits and losses on biodiversity loss. The main evidence indicates the highest CoBiodiversity and DeltaCoBiodiversity measures for system losses and sector profits conditioned to biodiversity loss, especially in information technology and financials, during the global financial crisis of 2008 and COVID-19. The highest ExposureCoBiodiversity measure is also found for sector profits for materials and energy sectors in 2008 and 2020, respectively.
