A0264
Title: Measuring the impact of climate risk in financial markets: A joint quantile and expected shortfall regression model
Authors: Laura Garcia-Jorcano - Universidad de Castilla-La Mancha (Spain) [presenting]
Lidia Sanchis-Marco - University of Castilla-La Mancha (Spain)
Abstract: A novel approach is proposed to the measurement of financial risk conditioned to carbon risk exposure using the joint quantile and expected shortfall semiparametric methodology based on prior studies. This method allows for the compution of two climate risk measures called CoClimateVaR and CoClimateES which capture the dependence of the bank returns on extreme changes in CO2 returns at extreme quantiles representing green and brown states. Related measures, DeltaCoClimate and ExposureClimate for VaR and ES specifications are further built. The first one, appraise the effect on the tail risk of the bank to an improvement/deterioration in climate risk that leads to entering a green or brown state. The second one allows the establishment of each bank's exposure to climate risk and to identify differences between banks. The banks appear to be highly vulnerable to climate risks, whereas there is a higher potential for large losses in crisis periods, given the different pace of banking sector restructuring.
