Investors' Climate Sentiment and Financial Markets

Santi, Caterina

doi:10.2139/ssrn.3697581

Cited by 9 publications

(10 citation statements)

References 87 publications

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“…We use stocks cumulative returns in 2016, while firms' characteristics refer to the fiscal year 2015. Consistent with previous research (e.g., Choi et al, 2020;Santi, 2020), we identify a stock as an emission (carbon-intensive) stock if it belongs to one of the five industry sectors classified as major emission sources by the Intergovernmental Panel on Climate Change (IPCC). The remaining stocks are classified as clean (low-emission) stocks.…”

Section: Introductionmentioning

confidence: 74%

“…Several studies have shown that institutional and retail investors are still not fully pricing climate risks and opportunities in their portfolios (Hong et al, 2019;Alok et al, 2020;Krueger et al, 2020;Benedetti et al, 2021;Faccini et al, 2021). Moreover, emotional factors such as climate sentiment impact the stock pricing of emission and clean firms (Bessec and Fouquau, 2020;Santi, 2020;Briere and Ramelli, 2021).…”

Section: Introductionmentioning

confidence: 99%

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Carbon Risk Premium and Worries about Climate Change and Energy Disruption

Santi

Moretti

2021

SSRN Journal

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Section: Introductionmentioning

confidence: 74%

Section: Introductionmentioning

confidence: 99%

Carbon Risk Premium and Worries about Climate Change and Energy Disruption

Santi

Moretti

2021

SSRN Journal

Self Cite

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“…An emerging literature has emphasized the role of “climate sentiments”, that is, investors’ expectations of future profitability and thus investment preferences under climate change, in shaping climate risk dynamics (Dunz et al., 2021). For example, “Climate sentiments” run high during times of attention‐grabbing events such as UN Conferences of the Parties (COP) and have a larger effect on stock prices during those times (Santi, 2021). Finally, there are a range of possible mechanisms, which have not been explored in the climate risk case.…”

Section: Forward‐looking Methodologiesmentioning

confidence: 99%

“…(2021) have insisted on the importance of investors’ non‐rational expectations in driving transition outcomes and risk exposures. On the empirical side, an emerging literature has intended to measure “climate sentiments” through textual analysis from newspapers (Ardia et al., 2020; Engle et al., 2020) and Twitter (Baylis, 2020; Santi, 2021). It has notably shown that investors’ perception of climate‐related risks greatly hinged on the occurrence of physical risks events (Choi et al., 2020), with short‐lived and small effects on asset prices (Pástor et al., 2021).…”

Section: Climate‐related Risks and Asset Pricesmentioning

confidence: 99%

Climate‐related risks in financial assets

Campiglio

Daumas

Monnin³

et al. 2022

Journal of Economic Surveys

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The financial risks and potential systemic impacts induced by climate change and the transition to a lowcarbon economy have become a central issue for both financial investors and their regulators. In this article, we develop a critical review of the empirical and theoretical literature concerning the impact of climaterelated risks on the price of financial assets. We first present the theoretical links between asset pricing and climate-related risks and develop a theory of how climate risk drivers transmit costs to firms and lead to asset price changes. We then discuss studies looking at past climate-related events, which show that both climate physical impacts and transition dynamics can trigger a revaluation of financial assets through multiple direct and indirect channels. Finally, we review the emerging literature that uses forward-looking methodologies to estimate future climate-related asset price changes, which suggests that climate financial risks can indeed have significant implications on financial stability.

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“…In this section, we provide economic interpretations on the source of the spillovers' predictive power for carbon volatility. Following Khan et al (2020), Santi (2020), van Benthem et al (2022), and He et al (2023, we relate the spillovers of fossil energy returns to the uncertainty of carbon emission and sentiment on climate changes because the carbon price volatility is essentially fluctuated by the emission activities of industries and the investor behaviors.…”

Section: Economic Channelsmentioning

confidence: 99%

The predictability of carbon futures volatility: New evidence from the spillovers of fossil energy futures returns

Zhang,

Wang

et al. 2024

Journal of Futures Markets

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In this paper, we find new evidence for the carbon futures volatility prediction by using the spillovers of fossil energy futures returns as a powerful predictor. The in‐sample results show that the spillovers have a significantly positive effect on carbon futures volatility. From the out‐of‐sample analysis with various loss functions, we find that fossil energy return spillovers significantly outperform the benchmark and show better forecasting performance than the competing models using dimension reduction, variable selection, and combination approaches. The predictive ability of the spillovers also holds in long‐term forecasting and does not derive from other carbon‐related variables. It can bring substantial economic gains in the portfolio exercise within carbon futures. Finally, we provide economic explanations on the predictive ability of the fossil energy return spillover by the channels of the carbon emission uncertainty and the investor sentiment on the warming climate.

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Investors' Climate Sentiment and Financial Markets

Cited by 9 publications

References 87 publications

Carbon Risk Premium and Worries about Climate Change and Energy Disruption

Carbon Risk Premium and Worries about Climate Change and Energy Disruption

Climate‐related risks in financial assets

The predictability of carbon futures volatility: New evidence from the spillovers of fossil energy futures returns

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