Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/201881
Authors: 
Engle, Robert
Giglio, Stefano
Lee, Heebum
Kelly, Bryan
Stroebel, Johannes
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper 7655
Abstract: 
We propose and implement a procedure to dynamically hedge climate change risk. We extract innovations from climate news series that we construct through textual analysis of newspapers. We then use a mimicking portfolio approach to build climate change hedge portfolios. We discipline the exercise by using third-party ESG scores of firms to model their climate risk exposures. We show that this approach yields parsimonious and industry-balanced portfolios that perform well in hedging innovations in climate news both in sample and out of sample. We discuss multiple directions for future research on financial approaches to managing climate risk.
Subjects: 
climate risk
JEL: 
G11
G18
Q54
Document Type: 
Working Paper

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