Hedging Climate Change News

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

The Review of Financial Studies, 2020, vol. 33, issue 3, 1184-1216

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.

JEL-codes: G11 G18 Q54 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (258)

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Related works:
Working Paper: Hedging climate change news (2019)
Working Paper: Hedging Climate Change News (2019)
Working Paper: Hedging Climate Change News (2019)
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