Arab Monetary Fund issues a study on " Assessing the Association between the Global Carbon Futures Index and the Stock Markets' Return and Volatility in Selected Arab Countries"

The study discusses:


Reducing Emissions through Carbon Certificates Trading Innovation

Carbon Trading: A Key Strategy for Climate Change Goals

Carbon Certificate Trading Boosts Stock Returns While Reducing Volatility Risks

Global Carbon Futures Index has Significant Effect on Stock Markets in Arab Countries

Arab Monetary Fund has released on Monday 27th of March 2023, a study titled "Assessing the association between the global carbon futures index and equity returns and volatility in selected Arab countries". The study aims to investigate the connection between the Global Carbon Futures Index (GCFI), stock returns, and volatility in four Arab stock exchanges: Bahrain, Saudi Arabia, Qatar, and the United Arab Emirates, by analyzing daily data between February 1, 2017, and October 30, 2022, using the generalized autoregressive conditional heterogeneity model (GARCH).


Carbon trading has gained significant interest in the Arab region, as evidenced by the Abu Dhabi Global Financial Market's announcement of launching an initiative to trade carbon contracts in 2022, and the establishment of an electronic exchange for trading carbon credits and a clearing house. The Arab Republic of Egypt also announced the establishment of the first Egyptian company to develop, manage, and issue carbon certificates during the United Nations Conference on Climate Change (COP 27).


The study concluded that there is a significant positive correlation between stock returns and the GCFI, and a statistically significant inverse relationship between the latter and stock price volatilities in the Arab stock exchanges under study. These results indicate that trading carbon certificates can enhance stock market returns while also reducing stock market volatility and risk. This can benefit businesses and investors by stabilizing markets and providing opportunities for growth.



The study's findings are essential for policymakers, regulators, and companies in the Arab region looking to reduce carbon emissions, mitigate climate change risks, and stabilize markets. 


The study is available on Arab Monetary Fund website, on this link