Real Time-Transition Risk
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.
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