Market Expectations About Climate Change
An emerging literature examines how agents update their beliefs about climate change. Most studies have relied on indirect belief measures or opinion polls. We analyze a direct measure: prices of financial products whose payouts are tied to future weather outcomes. We compare these market expectations to climate model output for the years 2002 to 2018 as well as observed weather station data across eight cities in the US. All datasets show statistically significant and comparable warming trends. Nonparametric estimates suggest that trends in weather markets follow climate model predictions and are not based on shorter-term variation in observed weather station data. When money is at stake, agents are accurately anticipating warming trends in line with the scientific consensus of climate models.
The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.