IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v53y2023ics1544612322007760.html
   My bibliography  Save this article

Real-time transition risk

Author

Listed:
  • Apel, Matthias
  • Betzer, André
  • Scherer, Bernd

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.

Suggested Citation

  • Apel, Matthias & Betzer, André & Scherer, Bernd, 2023. "Real-time transition risk," Finance Research Letters, Elsevier, vol. 53(C).
    • Handle: RePEc:eee:finlet:v:53:y:2023:i:c:s1544612322007760
    DOI: 10.1016/j.frl.2022.103600
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612322007760
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2022.103600?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Robert F Engle & Stefano Giglio & Bryan Kelly & Heebum Lee & Johannes Stroebel, 2020. "Hedging Climate Change News," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1184-1216.
    2. Bolton, Patrick & Kacperczyk, Marcin, 2021. "Do investors care about carbon risk?," Journal of Financial Economics, Elsevier, vol. 142(2), pages 517-549.
    3. Lauren Cohen & Umit G. Gurun & Quoc H. Nguyen, 2020. "The ESG-Innovation Disconnect: Evidence from Green Patenting," NBER Working Papers 27990, National Bureau of Economic Research, Inc.
    4. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
    5. David Ardia & Keven Bluteau & Kris Boudt & Koen Inghelbrecht, 2020. "Climate change concerns and the performance of green versus brown stocks," Working Paper Research 395, National Bank of Belgium.
    6. Fama, Eugene F. & French, Kenneth R., 2015. "A five-factor asset pricing model," Journal of Financial Economics, Elsevier, vol. 116(1), pages 1-22.
    7. Philipp Krueger & Zacharias Sautner & Laura T Starks, 2020. "The Importance of Climate Risks for Institutional Investors," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1067-1111.
    8. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    9. Aaron K. Chatterji & Rodolphe Durand & David I. Levine & Samuel Touboul, 2016. "Do ratings of firms converge? Implications for managers, investors and strategy researchers," Strategic Management Journal, Wiley Blackwell, vol. 37(8), pages 1597-1614, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Faccini, Renato & Matin, Rastin & Skiadopoulos, George, 2023. "Dissecting climate risks: Are they reflected in stock prices?," Journal of Banking & Finance, Elsevier, vol. 155(C).
    2. Cepni, Oguzhan & Şensoy, Ahmet & Yılmaz, Muhammed Hasan, 2024. "Climate change exposure and cost of equity," Energy Economics, Elsevier, vol. 130(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ho, Thang, 2022. "Climate change news sensitivity and mutual fund performance," International Review of Financial Analysis, Elsevier, vol. 83(C).
    2. Pástor, Ľuboš & Stambaugh, Robert F. & Taylor, Lucian A., 2022. "Dissecting green returns," Journal of Financial Economics, Elsevier, vol. 146(2), pages 403-424.
    3. Venturini, Alessio, 2022. "Climate change, risk factors and stock returns: A review of the literature," International Review of Financial Analysis, Elsevier, vol. 79(C).
    4. Faccini, Renato & Matin, Rastin & Skiadopoulos, George, 2023. "Dissecting climate risks: Are they reflected in stock prices?," Journal of Banking & Finance, Elsevier, vol. 155(C).
    5. Alessi, Lucia & Ossola, Elisa & Panzica, Roberto, 2021. "What greenium matters in the stock market? The role of greenhouse gas emissions and environmental disclosures," Journal of Financial Stability, Elsevier, vol. 54(C).
    6. Ramelli, Stefano & Ossola, Elisa & Rancan, Michela, 2021. "Stock price effects of climate activism: Evidence from the first Global Climate Strike," Journal of Corporate Finance, Elsevier, vol. 69(C).
    7. Lioui, Abraham & Tarelli, Andrea, 2022. "Chasing the ESG factor," Journal of Banking & Finance, Elsevier, vol. 139(C).
    8. Reboredo, Juan C. & Ugolini, Andrea, 2022. "Climate transition risk, profitability and stock prices," International Review of Financial Analysis, Elsevier, vol. 83(C).
    9. Rzeznik, Aleksandra & Weiss-Hanley, Kathleen, 2021. "The Salience of ESG Ratings for Stock Pricing: Evidence From (Potentially) Confused Investors," CEPR Discussion Papers 16334, C.E.P.R. Discussion Papers.
    10. Tristan Jourde & Arthur Stalla-Bourdillon, 2024. "PEnvironmental Preferences and Sector Valuations," Working papers 964, Banque de France.
    11. Ardia, David & Bluteau, Keven & Tran, Thien Duy, 2022. "How easy is it for investment managers to deploy their talent in green and brown stocks?," Finance Research Letters, Elsevier, vol. 48(C).
    12. Avramov, Doron & Cheng, Si & Lioui, Abraham & Tarelli, Andrea, 2022. "Sustainable investing with ESG rating uncertainty," Journal of Financial Economics, Elsevier, vol. 145(2), pages 642-664.
    13. Felix Kapfhammer & Vegard H. Larsen & Leif Anders Thorsrud, 2020. "Climate risk and commodity currencies," Working Paper 2020/18, Norges Bank.
    14. Lars Hornuf & Gül Yüksel, 2022. "The Performance of Socially Responsible Investments: A Meta-Analysis," CESifo Working Paper Series 9724, CESifo.
    15. Ricardo Gimeno & Clara I. González, 2022. "The role of a green factor in stock prices. When Fama & French go green," Working Papers 2207, Banco de España.
    16. Siri Tronslien Sagbakken & Dan Zhang, 2022. "European sin stocks," Journal of Asset Management, Palgrave Macmillan, vol. 23(1), pages 1-18, February.
    17. Alessi, Lucia & Ossola, Elisa & Panzica, Roberto, 2019. "The Greenium matters: greenhouse gas emissions, environmental disclosures, and stock prices," Working Papers 2019-12, Joint Research Centre, European Commission, revised Apr 2020.
    18. Du, Qianqian & Su, Wanxuan & Liang, Dawei & Wang, Luying, 2023. "How does green preference impact sustainability-based investment strategy? Evidence from the Chinese stock market," Economic Modelling, Elsevier, vol. 124(C).
    19. Alessi, Lucia & Elisa, Ossola & Panzica, Roberto, 2021. "When do investors go green? Evidence from a time-varying asset-pricing model," JRC Working Papers in Economics and Finance 2021-13, Joint Research Centre, European Commission.
    20. Eom, Yunsung & Kang, Young Dae & Sohn, Wook, 2024. "Is the Korean green premium in equilibrium?," International Review of Economics & Finance, Elsevier, vol. 92(C), pages 245-260.

    More about this item

    Keywords

    Transition risk; Climate finance; News sentiment; Natural language processing; Asset Pricing;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:53:y:2023:i:c:s1544612322007760. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.