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Contribution Details
| Type | Journal Article |
| Scope | Discipline-based scholarship |
| Title | Shocks to Transition Risk |
| Organization Unit |
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| Authors |
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| Item Subtype | Original Work |
| Refereed | No |
| Status | Published electronically before print/final form (Epub ahead of print) |
| Language |
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| Journal Title | SSRN Electronic Journal |
| Geographical Reach | international |
| ISSN | 1556-5068 |
| Page Range | 1 - 32 |
| Date | 2020 |
| Abstract Text | We propose and implement a method to identify shocks to transition risk. We identify transition risk shocks as instances where a strong differential valuation of green versus brown firms coincides with significant information on climate change. For that purpose, we combine information from long-short equity portfolios sorted on firms' carbon footprints with information from textual analysis of newspaper archives. We find that shocks increasing transition risk (negative abnormal returns of brown firms) induce a decline in aggregate and sectoral industrial production. Moreover, they significantly affect financial stability, as measured by the excess bond premium or credit conditions more generally. Finally, we document a pronounced asymmetry in the economy's response to shocks increasing or decreasing transition risk. |
| Digital Object Identifier | 10.2139/ssrn.3654155 |
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