Climate Change Vulnerability and Currency Returns

Financial Analyst Journal https://doi.org/10.1080/0015198X.2022.2100233

23 Pages Posted: 22 Jun 2021 Last revised: 28 Aug 2022

Date Written: May 19, 2021

Abstract

Using measures of physical risk from climate change, we develop a methodology to allocate currency pairs according to a country’s vulnerability and construct portfolios with decreasing vulnerability to physical risk. We show that non-G10 currencies are more vulnerable to physical risk, have become less vulnerable over time, and that the vulnerability measure is correlated with higher losses from natural disasters. Portfolios exposed to currencies with decreasing vulnerability have exhibited positive abnormal returns, with the abnormal return coming from currencies that have relatively high levels of vulnerability. These results exist in non-G10 currencies, while no
relation is found within G10 currencies.

Keywords: climate change, physical risk, climate vulnerability, foreign exchange, currency returns, emerging market; ESG

Suggested Citation

Cheema-Fox, Alexander and Serafeim, George and Wang, Hui, Climate Change Vulnerability and Currency Returns (May 19, 2021). Financial Analyst Journal https://doi.org/10.1080/0015198X.2022.2100233, Available at SSRN: https://ssrn.com/abstract=3864393 or http://dx.doi.org/10.2139/ssrn.3864393

Alexander Cheema-Fox

State Street Associates ( email )

140 Mount Auburn St
Cambridge, MA 02139
United States

George Serafeim

Harvard Business School ( email )

Boston, MA 02163
United States

HOME PAGE: http://www.hbs.edu/faculty/Pages/profile.aspx?facId=15705

Hui Wang (Contact Author)

Fidelity ( email )

245 Summer Street
Boston, MA 02110
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
336
Abstract Views
1,287
Rank
163,955
PlumX Metrics