How Uncertainty Shapes Global Investment Behavior
In this expert insight, Dr. Joseph J. French explores how shifts in government policies, ranging from trade and regulation to climate action, are reshaping the global financial landscape. Drawing from his research, he explains how investors respond to uncertainty, why emerging markets are especially vulnerable, and how energy hedge funds are adapting in the face of climate policy volatility.
A must-read for anyone interested in sustainable finance, risk management, and global economic trends.
By Dr. Joseph J. French
Uncertainty is a defining feature of today’s financial world. Governments around the globe frequently change policies related to trade, regulation, or climate, and these shifts create ripple effects throughout financial markets. My research focuses on how investors respond to this kind of policy uncertainty.
One of the central takeaways from my work is that uncertainty doesn’t always drive investors away. In some cases, global investors respond by reallocating capital to countries they perceive as more stable, even when those countries themselves are facing elevated uncertainty. However, when uncertainty becomes too widespread or persistent, especially during geopolitical shocks or financial crises, emerging markets tend to experience rapid capital outflows, putting pressure on their financial systems.
Another focus of my work is on energy hedge funds, which face a unique mix of risks from both financial markets and the evolving energy transition. These funds must manage not only market volatility but also a growing set of regulatory and environmental risks. One increasingly important factor is climate policy uncertainty, the risk that governments will suddenly change carbon pricing, emissions targets, or energy subsidies. Interestingly, we find that these funds often respond to periods of high uncertainty by innovating, adopting strategies that reduce their fund-specific volatility. For instance, trend-following strategies that adapt to market momentum seem to help manage risks tied to energy prices, climate policy, and broader economic conditions.
Climate policy uncertainty doesn’t just affect energy firms; it also reshapes how investors price risk in sectors linked to fossil fuels, renewables, and infrastructure. As governments around the world pursue net-zero goals at different speeds and with varying consistency, the investment landscape becomes harder to navigate, especially for long-horizon capital.
Overall, my research shows that policy uncertainty is more than just a source of volatility; it actively reshapes how capital moves and how financial actors behave. By better understanding these patterns, we can help investors, institutions, and policymakers make more informed decisions in a world where uncertainty is likely to grow.
About Dr. Joseph
Dr. Joseph J. French is an Associate Professor of Finance and Director of the International Finance Program at the School of Management of the Asian Institute of Technology (AIT). He holds a PhD in Financial Economics from the University of New Orleans and an MBA from Clemson University. His research interests include international finance, corporate finance, and developmental economics, with publications in journals such as the Journal of Empirical Finance and the International Review of Financial Analysis. Before joining AIT, he spent 16 years at the University of Northern Colorado as a Full Professor and Chair of the Finance Department, earning Professor Emeritus status.
Dr. Joseph also serves as an Extraordinary Professor at the University of the Western Cape and is a visiting professor at various universities worldwide, including Hitotsubashi University and Copenhagen Business School.
