Title : ECB’s Climate Speeches and Market Reactions
Author(s) : Antoine Ebeling
Abstract : This paper study the impact of the European Central Bank’s (ECB) climate related speeches on European stock markets. Using the database of 2594 speeches between 1997 and 2022 of the European Central Bank, we employ advanced textual analysis techniques, including keyword identification and topic modeling, to isolate speeches related to climate change. We then conduct an event study to estimate the differences in abnormal returns of a large panel of listed companies in response to the European Central Bank’s speeches on climate change. Our analysis reveals that the ECB’s communication on climate issues has intensified significantly since 2015. Using topic modelling methods, we classify climate speeches into two main themes: (i) green finance and economic policies, and (ii) climate-related risks The event study shows that financial markets tend to reallocate portfolios towards greener ones in the days following the ECB’s climate speeches. Our results show that following a climatic speech by the ECB, green financial markets are benefiting from positive abnormal returns by around 1 percentage point. More specifically, we find that climate speeches dealing with green monetary policy and other economic policy instruments have a larger effect on green stock prices than speeches dealing with different types of climate risk.
Key-words : Central bank communication ; Climate change ; Event Study ; Textual Analysis
JEL Classification : E52 ; G14 ; Q54
