Investor Climate Sentiment and Financial Markets

Abstract

We propose to measure investor climate sentiment by performing sentiment analysis on StockTwits posts on climate change and global warming. In financial markets, stocks of emission (carbon-intensive) firms underperform clean (low-emission) stocks when investor climate sentiment is more positive. We document investors overreaction to climate change risk and reversal in longer horizons. Salient but uninformative climate change events (i.e., release of a report on climate change, high coverage of negative news on climate change, abnormal weather events, and high carbon prices) facilitate the investor learning process and correction of the mispricing.

Keywords: Climate Change, Sentiment, Asset Pricing, Sustainable Investing, Social Networks, StockTwits, Textual Analysis.

JEL Classification: G10; G12; Q54; Q58.