Climate-related risk and pharmaceutical market dynamics in India and USA: evidence from transfer entropy, BEKK GARCH, and coherence wavelet.

BACKGROUND Greenhouse gas emissions, especially the atmospheric trapping of carbon dioxide (CO2), are widely linked to increased weather variability, thereby affecting other aspects of human activity and nature. The increased occurrence of intense rainfall, heat waves, flooding, and droughts worsens the volatility of financial markets. RESEARCH DESIGN AND METHODS The present study aims to investigate the cross-impacts of climate change and pharmaceutical sector activities, particularly in the United States (US) and India. Climate risks are predominant in emerging economies such as India, which lack sufficient resources for climate change mitigation and adaptation. In this context, we employ transfer entropy, BEKK GARCH (Baba, Engle, Kraft, and Kroner Generalized Autoregressive Conditional Heteroskedasticity), and coherence wavelet approaches to examine the relationship between the two aspects. RESULTS India's pharmaceutical index contributes more to climate risk. Interestingly, US pharmaceutical market co-movements with climate risks are high despite low volatility spillover. This suggests developed nations like the US possess superior resources to manage climate risks compared to developing economies like India. CONCLUSIONS While this outcome is limited to the contexts of India and the US, it offers insights to decision-makers, investors, and relevant portfolio managers on the vulnerability of essential sectors to climate-related risks.