“Hedging Climate Change News” (2019), by Robert F. Engle et al. Economics research paper. Original abstract below, unchanged. No free PDF was found.

Hedging Climate Change News

Robert F. Engle, Stefano Giglio, Bryan Kelly et al. · July 8, 2019 · Economics

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.

Source page DOI: 10.1093/rfs/hhz072