Hedging against climate risk
How can investors manage assets to construct portfolios that hedge against climate risk? These are among the issues considered in Climate Finance, a forthcoming paper from the NYU Stern School of Business. The authors review the literature studying interactions between climate change and financial markets. From the abstract: “We first discuss various approaches to incorporating climate risk in macro-finance models. We then review the empirical literature that explores the pricing of climate risks across a large number of asset classes including real estate, equities, and fixed income securities. In this context, we also discuss how investors can use these assets to construct portfolios that hedge against climate risk. We conclude by proposing several promising directions for future research in climate finance.” Authors: Stefano Giglio, Yale School of Management; National Bureau of Economic Research, Centre for Economic Policy Research; Bryan T. Kelly, Yale SOM, AQR Capital Management, National Bureau of Economic Research; and Johannes Stroebel, NYU Leonard N. Stern School of Business, National Bureau of Economic Research, Centre for Economic Policy Research.
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