Real-Time Transition Risk

56 Pages Posted: 27 Aug 2021 Last revised: 2 Mar 2023

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. By explicitly considering news to signal an increase or a decrease in the external pressure towards a shift to a lower-carbon economy, we overcome the assumption that “no news is good news on climate” inherent in previous research. We evaluate the return sensitivity of publicly available climate portfolios that apply different approaches to measure a firm’s environmental performance based on investors’ objectives. Our results show that short-term transition risk tends to affect returns of stock portfolios 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). Finance Research Letters, Forthcoming, 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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