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Potential Climate Risks in Financial Markets: A Literature Overview

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  • Hjort, Ingrid

    (Dept. of Economics, University of Oslo)

Abstract

This literature overview conducts a systematic study of how the climate related risks from global warming may aff ect fi nancial markets. The climate related risk is divided into three subcategories, the environmental uncertainty, the economic climate risk and the climate policy risk, which all of them may aff ect the markets directly or indirectly. The perspective is broad, including production possibilities, productivity, social disturbance, health, migration and trade. Stock prices are affected by beliefs about future path of expected return. Climate change signifi es possible disruptions in production and consumption possibilities, which may imply reduction in future asset values. Expectations of this will reduce asset values today. There are few studies in the research literature that explicitly attempt to identify mispricing. The survey compares di fferent event studies that may reflect how the financial market react to the climate related risks. The empirical evidence is mixed, and few general conclusions can be drawn. It is unclear whether the market reactions are consistent with rational market valuation of the climate risk.

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  • Hjort, Ingrid, 2016. "Potential Climate Risks in Financial Markets: A Literature Overview," Memorandum 01/2016, Oslo University, Department of Economics.
    • Handle: RePEc:hhs:osloec:2016_001
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    Cited by:

    1. Victor Cardenas, 2024. "Financial climate risk: a review of recent advances and key challenges," Papers 2404.07331, arXiv.org.
    2. Lööf, Hans & Martinsson, Gustav & Mohammadi, Ali, 2017. "Finance and Innovative Investment in Environmental Technology: The Case of Sweden," Working Paper Series in Economics and Institutions of Innovation 445, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    3. Gregor Semieniuk & Emanuele Campiglio & Jean‐Francois Mercure & Ulrich Volz & Neil R. Edwards, 2021. "Low‐carbon transition risks for finance," Wiley Interdisciplinary Reviews: Climate Change, John Wiley & Sons, vol. 12(1), January.
    4. Banerjee, Rajabrata & Gupta, Kartick & Mudalige, Priyantha, 2020. "Do environmentally sustainable practices lead to financially less constrained firms? International evidence," International Review of Financial Analysis, Elsevier, vol. 68(C).
    5. van der Ploeg, Frederick & Rezai, Armon, 2020. "The risk of policy tipping and stranded carbon assets," Journal of Environmental Economics and Management, Elsevier, vol. 100(C).
    6. Han, Jianlei & Linnenluecke, Martina K. & Pan, Zheyao (Terry) & Smith, Tom, 2019. "The wealth effects of the announcement of the Australian carbon pricing scheme," Pacific-Basin Finance Journal, Elsevier, vol. 53(C), pages 399-409.
    7. Zhang, Si Ying, 2022. "Are investors sensitive to climate-related transition and physical risks? Evidence from global stock markets," Research in International Business and Finance, Elsevier, vol. 62(C).
    8. Elena Rogova & Galina Aprelkova, 2020. "The Effect of IPCC Reports and Regulatory Announcements on the Stock Market," Sustainability, MDPI, vol. 12(8), pages 1-17, April.

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    More about this item

    Keywords

    climate change; climate risk; climate policy risk; fi nancial markets; stranded assets; divestment;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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