Factor-Mimicking Portfolios for Climate Risk
提出一种通过报纸文本分析构建气候风险指数，并利用新方法构建因素模拟投资组合来对冲气候风险，实证表明该组合在样本外表现优于传统方法。
We propose and implement a procedure to optimally hedge climate change risk. First, we construct climate risk indices through textual analysis of newspapers. Second, we present a new approach to compute factor-mimicking portfolios to build climate risk hedge portfolios. The new mimicking portfolio approach is much more efficient than traditional sorting or maximum correlation approaches by taking into account new methodologies of estimating large-dimensional covariance matrices in short samples. In an extensive empirical out-of-sample performance test, we demonstrate the superior all-around performance delivering markedly higher and statistically significant alphas and betas with the climate risk indices.