Peeling away the layers of news : climate change sentiments and financial markets

Tran, PA

Abstract

Unlike other news, climate news conveys the uncertainty around the substantial trajectory and the economic consequences of climate change. Since solutions to climate change are uncertain, unknown, or undesirable, climate change news may trigger counter-productive responses like denial, avoidance, and disagreement; thus, news on climate change becomes an excellent source for disagreement and uncertainty. This thesis examines the effect of climate disagreement and uncertainty sentiments on stock performances in the U.K. Based on a large sample of climate news with data set of 3,747,807 daily observations in the sample window from 2008 to 2019, the results from panel regression models show that both disagreement and uncertainty sentiments are positively associated with daily trading volume and future stock price volatility. The positive relations between disagreement and uncertainty sentiments with stock volatility are vital for firms operating in environmentally sensitive industries. Furthermore, disagreement and uncertainty sentiments induce significantly more positive trading volumes but less positive abnormal returns for firms without ESG scores than those who have ESG score available. I also propose and implement a procedure to hedge climate change risk in the second chapter dynamically. As I found in the previous chapter that sentiments in climate change news significantly impact stock performance, the thesis builds a portfolio model to hedge against these news innovations (i.e., news-based sentiment or climate change topics) as well as other national-level uncertainties. A mimicking portfolio approach is then used to build climate change hedge portfolios. I discipline the exercise using ESG performance and ESG report scores for firms in different industries to model their climate risk exposures. The thesis constructs an effective hedge portfolio to mitigate the risk posed by climate change and national-level uncertainties. Climate risk does not impact only the stock market but also the bond market. The green bond market has been growing swiftly internationally since its first introduction in 2007. One of the biggest challenges the green bond market faces is the “greenwashing” concern. Greenwashing exploits investors’ genuine environmental concerns, which create problems such as limiting investors’ ability to make actual environmentally friendly decisions or generating confusion and skepticism towards all products promoting green credentials, including those that are genuinely more environmentally friendly. Using a sample of green bonds from five countries spanning from 2007 to 2019, this study is the first empirical study that detailed environmental performance’s natural effect of green bond issuance by firms during 2007–2019, using propensity score matching and Difference in Difference model. Furthermore, the third chapter’s results show strong evidence that climate communication plays an essential role in firms’ commitment to improving their environmental footprint.

Citation

Tran, P. Peeling away the layers of news : climate change sentiments and financial markets. (Thesis). University of Salford

• Thesis Type: Thesis
• Deposit Date: Oct 5, 2021
• Publicly Available Date: Oct 5, 2021
• Award Date: Jul 1, 2021