The Dynamic Effect of Climate News on Financial Markets: Evidence from France

Hamza Bennani and Samuel Ligonnière ()

Working Papers from HAL

Abstract: We investigate the dynamic response of stock markets to climate-related risks in France. Using a novel dataset of 15,049 newspaper articles from Les Echos, Le Figaro, and Le Monde, we construct climate risk indices, including subindices for physical and transition risks, and relate them to stock market returns of 137 French companies using local projections. We show that climate risk shocks have a negative impact on stock returns, with persistent effects lasting up to two years. Moreover, transition risks exacerbate these negative effects for brown firms more than for green firms. Hence, and contrary to the efficient market hypothesis, our findings suggest a delayed and gradual incorporation of climate-related information by investors, particularly for firms with higher carbon emissions. These results underscore the need to account for dynamic market responses to climate information, particularly in the context of the low-carbon transition.

Keywords: climate risks; financial markets; natural language processing; local projections (search for similar items in EconPapers)
Date: 2025-03-07
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