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The macro-financial effects of Climate Policy Risk: evidence from Switzerland

Author

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  • Brendan Berthold

    (University of Lausanne, Swiss Institute of Applied Research (CREA)
    Investment Management)

Abstract

This paper quantifies empirically the macroeconomic and financial effects of Climate Policy Risk (CPR) in Switzerland. To do so, I develop a new CPR index using text analysis techniques on a large dataset of Swiss media articles. The identification of CPR shocks is achieved by using narrative restrictions around events which are likely to have coincided with an increase in the probability of adopting tighter climate policies. I find that CPR shocks are associated with a significant decline in real GDP and a decline in firm-level CO2 emissions. Using firm-level equity price data and rolling linear panel regressions, I document that CPR is increasingly reflected in asset prices. I further find that CO2-intensive firms perform significantly worse than their greener counterparts following events which increased transition risk. The results are in line with recent theoretical contributions.

Suggested Citation

  • Brendan Berthold, 2024. "The macro-financial effects of Climate Policy Risk: evidence from Switzerland," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 160(1), pages 1-13, December.
    • Handle: RePEc:spr:sjecst:v:160:y:2024:i:1:d:10.1186_s41937-024-00122-5
    DOI: 10.1186/s41937-024-00122-5
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    More about this item

    Keywords

    Climate policy risk; Transition risk; Event-study; Narrative restrictions; Business cycles; Asset prices;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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