Portal de Periódicos da CAPES

Dissecting Climate Risks: Are they Reflected in Stock Prices?

2021; RELX Group (Netherlands); Linguagem: Inglês

10.2139/ssrn.3795964

1556-5068

Renato Faccini, Rastin Matin, George Skiadopoulos,

Insurance and Financial Risk Management

We provide first-time evidence on whether market-wide physical or transition climate risks are priced in U.S. stocks. Textual and narrative analysis of Reuters climate-change news over 2000-2018, uncovers four novel risk factors related to natural disasters, global warming, international summits, and U.S. climate policy, respectively. Only the climate-policy factor is priced, especially post-2012. The documented risk premium is consistent with investors hedging the imminent transition risks from government intervention, rather than the direct risks from climate change itself. Firms that are most exposed to transition risks tend to be polluting businesses which show no strong intention of becoming greener.