Pricing Media-Derived Carbon Emission Betas

ESG investing has gained significant importance in the investment community around the world. While in principle the idea of scoring firms by ESG characteristics is formidable, its implementation h ...

Author(s):

Gideon Ozik

EDHEC Business School

Ronnie Sadka

Boston College

ESG investing has gained significant importance in the investment community around the world. While in principle the idea of scoring firms by ESG characteristics is formidable, its implementation has proven challenging, primarily because of the difficulty in measurement. In this preliminary study we use MKT MediaStats media information reservoirs, including tens of millions of articles, to carefully measure and quantify daily a particular component of ESG, the Carbon Emission narrative. Individual-stock daily return sensitivities to changes in narrative discussion (narrative betas) are computed using historical rolling windows. A Carbon Emission factor portfolio that mimics the Carbon Emission narrative, is constructed as a long-short narrative beta return spread among S&P 500 stocks, and is shown to mimic the fluctuations in the underlying narrative (correlation of 0.43). Utilities and Real Estate sectors are negatively exposed to the narrative while the Consumer Discretionary sector exhibits a highly positive exposure. Among Financials, Banks and Asset Managers are positively exposed while Exchanges and Insurance companies are negatively exposed to the Carbon Emission narrative. Exposures seem to vary geographically in the US.

Type:
Date: le 23/01/2020
Research Cluster : Finance

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