2019-03-08 18:29:12 UTC
Markets are superb at turning what participants believe to be facts into
prices. An intriguing new National Bureau of Economic Research study on market
expectations about climate change looks at the price trends of Chicago
Mercantile Exchange (CME) weather futures contracts.
"The evidence shows that financial markets fully incorporate climate model
projections," conclude Columbia University's agricultural and resource
economist Wolfram Schlenker and sustainable development researcher Charles
Taylor. "We find that the market has been accurately pricing in climate
change, largely in line with global climate models, and that this began
occurring at least since the early 2000s when the weather futures markets were
Basically, futures prices are reflecting the model predictions that there will
be fewer cold days and more hot days as a result of man-made climate change.
"There are also policy implications of our findings, especially since some
politicians still question the existence and extent of climate change," they
observe. "Anyone doubting the observed warming trend can make a significant
profit by betting against it in weather markets. However, the observed annual
trend in futures prices shows that the supposedly-efficient financial markets
agree that the climate is warming. At least so far, climate models have been
very accurate in predicting the average warming trend that's been observed
across the US. When money is on the line, it is hard to find parties willing
to bet against the scientific consensus."