Ask BERT: How Regulatory Disclosure of Transition and Physical Climate Risks Affects the CDS Term Structure
Journal
Journal of Financial Econometrics
ISSN
1479-8409
Type
journal article
Date Issued
2022
Author(s)
Abstract (De)
We use BERT, an AI-based algorithm for language understanding, to quantify regulatory climate risk disclosures and analyze their impact on the term structure in the credit default swap (CDS) market. Risk disclosures can either increase or decrease CDS spreads, depending on whether the disclosure reveals new risks or reduces uncertainty. Training BERT to differentiate between transition and physical climate risks, we find that disclosing transition risks increases CDS spreads after the Paris Climate Agreement of 2015, while disclosing physical risks decreases the spreads. In addition, we also find that the election of Trump had a negative impact on CDS spreads for firms exposed to transition risk. These impacts are consistent with theoretical predictions and economically and statistically significant.
Language
English
Refereed
Yes
Official URL
Subject(s)
Eprints ID
267542
File(s)![Thumbnail Image]()
Name
SSRN-id3616324.pdf
Size
1.14 MB
Format
Adobe PDF
Checksum (MD5)
bc489ec77f1319619ea6d7b7fc32b231