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Climate risks, corporate bonds, and economic uncertainty

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  • Lalwani, Vaibhav

Abstract

We test for the existence of climate change risks in corporate bond returns. Using risk factors based on textual analysis of news articles, we estimate the sensitivity of bonds to climate change news. Bonds that covary highly with global warming news earn lower returns. We also test whether economic policy uncertainty moderates the relationship between bond returns and climate news risk. The lower returns to high climate-risk bonds are driven by periods of high economic policy uncertainty. Therefore, investors increase their demand for bonds that perform better in periods of high global warming risks, especially when economic uncertainty is high.

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  • Lalwani, Vaibhav, 2024. "Climate risks, corporate bonds, and economic uncertainty," Economics Letters, Elsevier, vol. 244(C).
    • Handle: RePEc:eee:ecolet:v:244:y:2024:i:c:s0165176524004683
    DOI: 10.1016/j.econlet.2024.111984
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    Cited by:

    1. Yinjie Tang & Da Gao & Xiaotian Zhou, 2024. "Green Response: The Impact of Climate Risk Exposure on ESG Performance," Sustainability, MDPI, vol. 16(24), pages 1-19, December.

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    More about this item

    Keywords

    Asset-pricing; Global warming; Climate risk; Corporate bonds;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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