EU Climate Change News Index: Forecasting EU ETS prices with online news

Áron Dénes Hartvig, Áron Pap and Péter Pálos

Finance Research Letters, 2023, vol. 54, issue C

Abstract: Carbon prices have been rapidly increasing in the EU since 2018 and accurate forecasting of EU Emissions Trading System (ETS) prices has become essential. This paper proposes a novel method to generate alternative predictors for daily ETS price returns using relevant online news information. We devise the EU Climate Change News Index by calculating the term frequency–inverse document frequency (TF–IDF) feature for climate change-related keywords. The index is capable of tracking the ongoing debate about climate change in the EU. Finally, we show that incorporating the index in a simple predictive model significantly improves forecasts of ETS price returns.

Keywords: Emissions trading system; Carbon price prediction; Online news; TF–IDF; Climate change; Market index (search for similar items in EconPapers)
JEL-codes: C80 Q48 Q54 Q58 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:54:y:2023:i:c:s1544612323000946

DOI: 10.1016/j.frl.2023.103720

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