Climate risks, corporate bonds, and economic uncertainty

Vaibhav Lalwani

Economics Letters, 2024, vol. 244, issue C

Abstract: We test for the existence of climate change risks in corporate bond returns. Using risk factors based on textual analysis of news articles, we estimate the sensitivity of bonds to climate change news. Bonds that covary highly with global warming news earn lower returns. We also test whether economic policy uncertainty moderates the relationship between bond returns and climate news risk. The lower returns to high climate-risk bonds are driven by periods of high economic policy uncertainty. Therefore, investors increase their demand for bonds that perform better in periods of high global warming risks, especially when economic uncertainty is high.

Keywords: Asset-pricing; Global warming; Climate risk; Corporate bonds (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:244:y:2024:i:c:s0165176524004683

DOI: 10.1016/j.econlet.2024.111984

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