A1687
Title: Nonlinear impacts of transition risk in CDS markets
Authors: Luca De Angelis - University of Bologna (Italy) [presenting]
Emanuele Campiglio - University of Bologna (Italy)
Paolo Neri - University of Bologna (Italy)
Ginevra Scalisi - University of Bologna (Italy)
Abstract: It is still unclear to what extent transition risks are being internalised by financial investors. A novel investigation of the impact of media-based measures of transition risks on the credit risk of energy companies is provided, as measured by their CDS spreads, in both Europe and North America. Using both linear and nonlinear local projections, it is found that, in both jurisdictions, a transition risk shock affects CDS spreads only when combined with tangible physical climate-related impacts. Evidence of nonlinear cross-border effects is also found, especially for North American energy companies following a transition shock and a climate-related disaster in Europe. It is suggested that the public reaction in the wake of severe natural disasters, which might push policy-makers to adopt more decisive climate action, contribute to making the transition-related debate salient in the eyes of credit market actors.
