Hedging Climate Change News

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ID: 299312
2019
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Ranked #79 of 194 articles by views in review of financial studies

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Abstract
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.
Reference Key
openalex_W4214836379 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Robert F. Engle, Stefano Giglio, Bryan Kelly, Heebum Lee, Johannes Stroebel
Journal review of financial studies
Year 2019
DOI
10.1093/rfs/hhz072
URL
https://doi.org/10.1093/rfs/hhz072
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