https://doi.org/10.52903/wp2026367
CLIMATE RISKS, SHORT AND LONG;
Rhys Bidder
King’s Business School, King’s College London
Dimitris Papadimitriou
King’s Business School, King’s College London
Lavinia Rognone
University of Edinburgh
Shunshun Zhang
King’s Business School, King’s College London
ABSTRACT
We study how climate policy risk is priced across the maturity structure of equity cash flows. Using textual analysis of European news articles, we construct indices of transition and physical climate risk and, drawing on recent advances in measuring the temporal dimension of text, classify climate news by the horizon it references. We combine these indices with prices of dividend futures and dividend swaps, which allow us to decompose stock price reactions to climate news into short- and long-term cash-flow components. Heightened transition-risk news lowers stock prices, and the decline is concentrated in long-maturity dividend claims. The evidence suggests that investors expect most firms to defer adaptation, leaving near-term earnings and payouts largely unchanged while bearing greater long-run exposure. Finally, firm-level sensitivities identify which companies the market perceives as adapting early — accepting short-term losses to invest in the transition — versus those most exposed to stranded-asset risk.
Keywords: Dividend Futures; Climate Risk; Transition Risk; Equity Term Structure.
JEL-classifications: G12; G13; G54
Acknowledgments: The authors would like to thank Roni Michaely, Filippos Papakonstantinou, George Skiadopoulos, Josef Zechner and seminar participants in King’s Business School for helpful comments and suggestions. We gratefully acknowledge funding from King’s Business School Qatar Centre for Global Banking and Finance “Faculty Innovation Fund” and from Bank of Greece. This research was conducted in the context of the Bank’s programme of cooperation with universities. Any remaining errors are our own.
Correspondence:
Dimitris Papadimitriou
King’s Business School, King’s College
London, UK
email: d.papadimitriou@kcl.ac.uk