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Abstract In this article, multi‐scale LPPLS confidence indicator approach is used to detect both positive and negative bubbles at short‐, medium‐, and long‐term horizons for the stock markets of the G7 and the BRICS countries. This enables detecting major crashes and rallies in the 12 stock markets over the period of the 1st week of January, 1973 to the 2nd week of September, 2020. Similar timing of strong (positive and negative) LPPLS indicator values across both G7 and BRICS countries was also observed, suggesting interconnectedness of the extreme movements in these stock markets. Next, these indicators were utilized to forecast gold returns and its volatility, using a method involving block means of residuals obtained from the popular LASSO routine, given that the number of covariates ranged between 42 and 72, and gold returns demonstrated a heavy upper tail. The finding was, these bubbles indicators, particularly when both positive and negative bubbles are considered simultaneously, can accurately forecast gold returns at short‐ to medium‐term, and also time‐varying estimates of gold returns volatility to a lesser extent. The results of this paper have important implications for the portfolio decisions of investors who seek a safe haven during boom‐bust cycles of major global stock markets. 

Because climate change broadcasts a large aggregate risk to the overall macroeconomy and the global financial system, we investigate how a temperature anomaly and/or its volatility affect the accuracy of forecasts of stock return volatility. To this end, we do not apply only the classical GARCH and GARCHX models, but rather we apply newly proposed model-free prediction methods, and use GARCH-NoVaS and GARCHX-NoVaS models to compute volatility predictions. These two models are based on a normalizing and variance-stabilizing transformation (NoVaS transformation) and are guided by a so-called model-free prediction principle. Applying the new models to data for South Africa, we find that climate-related information is helpful in forecasting stock return volatility. Moreover, the novel model-free prediction method can incorporate such exogenous information better than the classical GARCH approach, as revealed by the the squared prediction errors. More importantly, the forecast comparison test reveals that the advantage of applying exogenous information related to climate risks in prediction of the South African stock return volatility is significant over a century of monthly data (February 1910–February 2023). Our findings have important implications for academics, investors, and policymakers.