Impact of Public Attention to Climate Change News on Stock Market (with Ruipeng Liu).
This paper is to examine the effect of public attention to climate change on stock markets. Specifically, we find that there is a significant risk premium due to climate change news in stock market. The risk premium due to climate change news are 0.77%, 0.62% and 0.54% per month corresponding to different specifications. In addition, the findings indicate that climate change news increases the risk premium of fossil fuel industries and firms in carbon-intensive industries. “Value” portfolios and “big “portfolios are affected more negatively by climate change news than “growth” portfolios and “small” portfolios. Moreover, we find that firms headquartered in Republican states are more negatively affected by climate change news than those in Democratic states.
Navigating Climate Uncertainty: Clean Tech vs Fossil Fuel ETFs (with Ruipeng Liu).
Using non-parametric estimates with imposing inequality restrictions, we compare unconditional to conditional estimators for “green” and “brown” ETFs, namely fossil fuel, and clean energy. Specifically, while unconditional tests could not indicate that the “green” outperforms the “brown”, the outperformance of the “green” is statistically significant in conditional testing incorporating climate-related information. Similarly, the conditional tests show that “brown” ETFs are riskier than “green” ETFs, especially downside risk beta. Interestingly, we document that non-fundamental demand proxied by fund flows for the “green” is higher than that for the “brown” only when incorporating the relevant information in the test. In general, we provide formal tests on controversial questions about the “green” and “brown” assets.
Do Investors Hold "Green" Assets in the Long Run? Evidence from a Clean Energy ETF (solo-authored).
Clean energy stocks delivered high returns in recent years because of concerns about climate change. The paper computes the optimal allocation to Invesco WilderHill Clean Energy ETF (PBW) at long horizons. I find that the horizon effect is more pronounced when investors account for the predictability and the parameter uncertainty. Specifically, the parameter uncertainty makes PBW riskier as the horizon increases. Therefore, investors have a propensity for decreasing the holding in PBW at long horizons. In other words, the findings indicate that ignoring the parameter uncertainty makes the investor overallocate to clean energy stocks, especially when the risk-aversion is low.
1. Allocation to cryptocurrency in the long run.
2. Does Bitcoin add economic value in asset allocation? Evidence from time-varying moments.