Real-Time Transition Risk

55 Pages Posted: 27 Aug 2021 Last revised: 30 Aug 2021

See all articles by Matthias Apel

Matthias Apel

University of Wuppertal - Schumpeter School of Business and Economics

André Betzer

University of Wuppertal - Schumpeter School of Business and Economics

Bernd Scherer

EDHEC Business School - Department of Economics & Finance

Date Written: August 17, 2021

Abstract

We develop a point-in-time index to approximate changes in transition risk from climate-related news events. We overcome the assumption that “no news is good news on climate” inherent in previous research as we specifically consider news to signal an increase or a decrease in the external pressure towards a shift to a lower-carbon economy. We evaluate the return sensitivity of publicly available green minus brown (GMB) portfolio proxies that apply different approaches to measure a firms’ environmental performance based on investors’ climate objectives. We find that short-term transition risk tends to affect stock prices based on firms’ business activity but not emissions.

Keywords: Transition Risk, Climate Finance, News Sentiment, Natural Language Processing, Asset Pricing

JEL Classification: G12, C8, Q54

Suggested Citation

Apel, Matthias and Betzer, André and Scherer, Bernd, Real-Time Transition Risk (August 17, 2021). Available at SSRN: https://ssrn.com/abstract=3911346 or http://dx.doi.org/10.2139/ssrn.3911346

Matthias Apel

University of Wuppertal - Schumpeter School of Business and Economics ( email )

Rainer-Gruenter-Str. 21
Wuppertal, 42119
Germany

André Betzer

University of Wuppertal - Schumpeter School of Business and Economics ( email )

Gaußstraße 20
Wuppertal
Germany

HOME PAGE: http://finance.uni-wuppertal.de/index.php?id=1153

Bernd Scherer (Contact Author)

EDHEC Business School - Department of Economics & Finance ( email )

France

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