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Publications
  • 2022
  • Article
  • Financial Analysts Journal

Climate Change Vulnerability and Currency Returns

By: Alex Cheema-Fox, George Serafeim and Hui (Stacie) Wang
  • Format:Print
  • | Pages:22
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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 Finance; Vulnerabilities; Currencies; Foreign Exchange; Climate Change; Currency; Natural Disasters

Citation

Cheema-Fox, Alex, George Serafeim, and Hui (Stacie) Wang. "Climate Change Vulnerability and Currency Returns." Financial Analysts Journal 78, no. 4 (2022): 37–58.
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About The Author

George Serafeim

Accounting and Management
→More Publications

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More from the Authors
  • Vytal: Packaging-as-a-Service By: George Serafeim, Michael W. Toffel and Stacy Straaberg
  • Northvolt: Building Batteries to Fight Climate Change (B) By: George Serafeim, Debora L. Spar, Peter Tufano, Hugo Etchegoyhen and Emilie Billaud
  • Climate Solutions, Transition Risk, and Stock Returns By: Shirley Lu, Edward J. Riedl, Simon Xu and George Serafeim
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