Research & Publications Office to host seminar on ‘Bond Short Selling and Climate Risk: Evidence from the CDS Market’ on 24 January
The talk will be delivered by Prof. Madhu Kalimipalli, Wilfrid Laurier University
20 January, 2025, Bengaluru: The Office of Research and Publications (R&P) at IIM Bangalore will host a research seminar on, ‘Bond Short Selling and Climate Risk: Evidence from the CDS Market’, to be led by Prof. Madhu Kalimipalli, Wilfrid Laurier University (Finance & Accounting area), at 12 pm on 24 January 2025, at Classroom-P12.
Abstract: Does climate risk influence bond short selling? The research addresses this question by studying how climate risk influences the relationship between corporate bond short selling and subsequent credit default swap (CDS) spreads. The researchers find that bond short selling is strongly related to future CDS spreads for the high climate risk firms. In particular, their fixed effects difference-in-differences (DiD) regressions show that sensitivity of subsequent CDS spreads to lagged bond short selling is significantly higher for firms with high regulatory and physical risks in the eight quarters following the post-Paris Accord of 2015. Specifically, the treated firms consist of those in the highest quartile of a given climate risk each quarter, while the control sample firms are propensity score matched lowest quartile firms for that quarter. The research results are robust to (a) alternate short-selling measure (i.e. utilization ratio) (b) alternate exogeneous events involving Trump election 2016 and US withdrawal from the Paris Accord 2017 (c) alternate CDS maturities (d) alternate climate risk proxies i.e., CDP scores and textual physical risk measures (source: Li et. al., 2024, RFS) (e) placebo test (f) the staggered DiD regressions involving sequential implementation of US state climate adaptation plans. Further tests show that the effect of climate risk on the relationship between bond short selling and subsequent CDS spreads mainly holds for long-term bond maturities. The findings contribute to the research on the role of short sellers in informing the effect of climate risk in credit markets.
Speaker Profile: Dr. Madhu Kalimipalli is currently Full Professor in Finance at the Lazaridis School of Business and Economics, Wilfrid Laurier University, Waterloo, Canada. He holds a PhD in Finance from the Bauer College of Business, University of Houston, and MA degrees in Economics from Rutgers University and the Gokhale Institute of Politics and Economics, Pune, India. His research is broadly in the areas of fixed income, financial intermediation, international finance, corporate finance and financial markets. His research has appeared in premier finance journals such as Journal of Financial Economics, The Review of Corporate Finance Studies, Journal of Financial Intermediation, Journal of Financial Markets, Journal of Banking and Finance, and Journal of Empirical Finance, among others.
Webpage Link: https://www.madhukalimipalli.com/
Research & Publications Office to host seminar on ‘Bond Short Selling and Climate Risk: Evidence from the CDS Market’ on 24 January
The talk will be delivered by Prof. Madhu Kalimipalli, Wilfrid Laurier University
20 January, 2025, Bengaluru: The Office of Research and Publications (R&P) at IIM Bangalore will host a research seminar on, ‘Bond Short Selling and Climate Risk: Evidence from the CDS Market’, to be led by Prof. Madhu Kalimipalli, Wilfrid Laurier University (Finance & Accounting area), at 12 pm on 24 January 2025, at Classroom-P12.
Abstract: Does climate risk influence bond short selling? The research addresses this question by studying how climate risk influences the relationship between corporate bond short selling and subsequent credit default swap (CDS) spreads. The researchers find that bond short selling is strongly related to future CDS spreads for the high climate risk firms. In particular, their fixed effects difference-in-differences (DiD) regressions show that sensitivity of subsequent CDS spreads to lagged bond short selling is significantly higher for firms with high regulatory and physical risks in the eight quarters following the post-Paris Accord of 2015. Specifically, the treated firms consist of those in the highest quartile of a given climate risk each quarter, while the control sample firms are propensity score matched lowest quartile firms for that quarter. The research results are robust to (a) alternate short-selling measure (i.e. utilization ratio) (b) alternate exogeneous events involving Trump election 2016 and US withdrawal from the Paris Accord 2017 (c) alternate CDS maturities (d) alternate climate risk proxies i.e., CDP scores and textual physical risk measures (source: Li et. al., 2024, RFS) (e) placebo test (f) the staggered DiD regressions involving sequential implementation of US state climate adaptation plans. Further tests show that the effect of climate risk on the relationship between bond short selling and subsequent CDS spreads mainly holds for long-term bond maturities. The findings contribute to the research on the role of short sellers in informing the effect of climate risk in credit markets.
Speaker Profile: Dr. Madhu Kalimipalli is currently Full Professor in Finance at the Lazaridis School of Business and Economics, Wilfrid Laurier University, Waterloo, Canada. He holds a PhD in Finance from the Bauer College of Business, University of Houston, and MA degrees in Economics from Rutgers University and the Gokhale Institute of Politics and Economics, Pune, India. His research is broadly in the areas of fixed income, financial intermediation, international finance, corporate finance and financial markets. His research has appeared in premier finance journals such as Journal of Financial Economics, The Review of Corporate Finance Studies, Journal of Financial Intermediation, Journal of Financial Markets, Journal of Banking and Finance, and Journal of Empirical Finance, among others.
Webpage Link: https://www.madhukalimipalli.com/