Climate-change risks can result from physical forces like wildfires, floods, or droughts or from changes in policy, the so-called transition risks created by government actions or the adoption of new technologies. A key question for academics, policy makers, firms, and investors is whether either type is being priced into securities markets.
In a new paper, Dissecting Climate Risks: Are they Reflected in Stock Prices?, we provide an answer to that question. We analyze climate news and provide separate proxies for market-wide physical risks and transition risks by performing textual analysis of Reuters climate-change news over 2000-2018.
We find that … Read more