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Do Twitter climate concerns predict stock returns?
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School of Business |
Master's thesis
Electronic archive copy is available via Aalto Thesis Database.
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Language
en
Pages
76
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Abstract
We examine the relation between climate change concerns and stock returns, both at aggregate and local levels. We use novel Twitter data to create the Twitter Climate Concerns index (TCC), a proxy for climate change concerns in the USA. Following methodologies provided by past literature, we build two climate portfolios, clean-minus-emission (CME) and green-minus-brown (GMB), that go long in climate-friendly stocks and short in climate-burdening stocks. Local level is defined as U.S Census Bureau Metropolitan Statistical Area (MSA)
We then test whether our TCC index explains climate portfolio returns. During our sample period from October 2011 to June 2019, we find a statistically significant relation between climate concerns and same-month climate portfolio returns both at aggregate and local levels. Our results indicate that unexpected increases in climate concerns are related to positive climate portfolio returns because concerned investors buy climate-friendly stocks and sell climate-burdening stocks. We also decompose our TCC index using three topic groups and find that topic-specific TCC indices have different relations with the climate portfolio returns, but none of the topics solely explains total climate concerns.
Our contribution to the existing climate finance literature is two-fold. First, our thesis is the first to use Twitter data to construct a proxy for climate concerns. Second, we are the first to examine the relation between climate concerns and stock returns on a local level.