Hedging climate change news

Robert Engle, Stefano Giglio, Heebum Lee, Bryan Kelly and Johannes Stroebel

No 7655, CESifo Working Paper Series from CESifo

Abstract: We propose and implement a procedure to dynamically hedge climate change risk. We extract innovations from climate news series that we construct through textual analysis of newspapers. We then use a mimicking portfolio approach to build climate change hedge portfolios. We discipline the exercise by using third-party ESG scores of firms to model their climate risk exposures. We show that this approach yields parsimonious and industry-balanced portfolios that perform well in hedging innovations in climate news both in sample and out of sample. We discuss multiple directions for future research on financial approaches to managing climate risk.

Keywords: climate; risk (search for similar items in EconPapers)
JEL-codes: G11 G18 Q54 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-env and nep-rmg
References: Add references at CitEc
Citations: View citations in EconPapers (29)

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Related works:
Journal Article: Hedging Climate Change News (2020)
Working Paper: Hedging Climate Change News (2019)
Working Paper: Hedging Climate Change News (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_7655

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