We empirically test the prediction of Pastor, Stambaugh, and Taylor (2020) that “green” firms tend to outperform “brown” firms when concerns about climate change increase, using data for S&P 500 companies from January 2010 to June 2018. To capture unexpected increases in climate change concerns, we construct a Media Climate Change Concerns index using news about climate change published by major U.S. newspapers. We find that when concerns about climate change increase unexpectedly, green firms’ stock prices increase, while brown firms’ decrease. Further, using topic modeling, we conclude that climate change concerns affect returns both through investors updating their expectations about firms’ future cash flows and through changes in investors’ preferences for sustainability.

The advent of massive amounts of textual, audio, and visual data has spurred the development of econometric methodology to transform qualitative sentiment data into quantitative sentiment variables, and to use those variables in an econometric analysis of the relationships between sentiment and other variables. We survey this emerging research field and refer to it as sentometrics , which is a portmanteau of sentiment and econometrics. We provide a synthesis of the relevant methodological approaches, illustrate with empirical results, and discuss useful software.