Browsing by Author "Freitas, Martim Cascais de"
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- Hedging against warmer days : the relationship between local temperature and stock returnsPublication . Freitas, Martim Cascais de; Silva, António Baldaque daThis research aims to find how mood swings regarding climate change affect stocks returns and what strategy could be used to hedge against these changes in perception. Based on prior literature I use local abnormal temperatures as a predictor of changes in the attention given to global warming. I assess the impact abnormal temperatures have on two different long-short portfolios for each of the seven country indices studied; one is based on industries, the other is based on Environmental (E) Scores provided by the London Stock Exchange Group (LSEG,previously Refinitiv). I find that stocks from companies operating in polluting industries as defined by the Intergovernmental Panel on Climate Change (IPCC) tended to underperform those who operate in clean industries in periods of high abnormal temperatures from 2016 to 2022. On a parallel experiment I also find that stocks with low E Scores tend to overperform stocks with high E Scores over the same period. These phenomena are observed essentially in the European Indices. Facing results pointing in opposite directions I study the relationship between E Scores and the industries companies operate in. I find that for the last 22 years,operating in high emissions industries as defined by the IPCC is associated with higher LSEG/Refinitiv E Scores.