Publication: Ask BERT: How Regulatory Disclosure of Transition and Physical Climate Risks affects the CDS Term Structure
Ask BERT: How Regulatory Disclosure of Transition and Physical Climate Risks affects the CDS Term Structure
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Kölbel, J., Leippold, M., Rillaerts, J., & Wang, Q. (2024). Ask BERT: How Regulatory Disclosure of Transition and Physical Climate Risks affects the CDS Term Structure. Journal of Financial Econometrics, 22(1), 30–69. https://doi.org/10.1093/jjfinec/nbac027
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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
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Kölbel, J., Leippold, M., Rillaerts, J., & Wang, Q. (2024). Ask BERT: How Regulatory Disclosure of Transition and Physical Climate Risks affects the CDS Term Structure. Journal of Financial Econometrics, 22(1), 30–69. https://doi.org/10.1093/jjfinec/nbac027
