Hedging Climate Change News
49 Pages Posted: 22 May 2019
There are 4 versions of this paper
Hedging Climate Change News
Hedging Climate Change News
Date Written: May 2019
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.
JEL Classification: G11, G18, Q54
Suggested Citation: Suggested Citation
Robert F. Engle (Contact Author)
New York University (NYU) - Department of Finance ( email )
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
Heebum Lee
New York University (NYU) - Department of Finance ( email )
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
Johannes Stroebel
New York University (NYU) - Leonard N. Stern School of Business ( email )
44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States