Financial waterBeta: A Portfolio Approach to Value Corporate Water Risk Exposure

waterBeta;stock volatility;water scarcity;asset allocation;School for Environment and Sustainability

Bleanda-Mogosanu, IulianaAlfaro, Jose ;

University of Michigan

关键词: waterBeta;    stock volatility;    water scarcity;    asset allocation;    School for Environment and Sustainability;   

Others  :  https://deepblue.lib.umich.edu/bitstream/handle/2027.42/143175/Bleanda-Mogosanu_Iuliana_Thesis.pdf?sequence=1&isAllowed=y

瑞士|英语

来源: The Illinois Digital Environment for Access to Learning and Scholarship

【 摘 要 】

The scope of this study is to develop and test a novel approach to quantify and value the impact ofwater risk exposures on stock volatility, by using a combination of portfolio theory, water resourceproductivity and natural language processing approaches. Current physical, regulatory, andreputational risks due to water scarcity impact corporate financial performance, strategic corporatedecisions, and asset allocation of portfolio investments on financial markets. Even though a diverserange of tools and methodologies exist to assist companies and investors in reducing the impact ofwater risk, there isn’t currently a standard due to the challenge to translate risk into financialmetrics. Therefore, this research tests the hypothesis that financial risk exposure from waterdepends on the type of activity in the watershed, the geographic distribution of a company’sfacilities and their economic output productivity. We used a sample of 25 companies in 5 differentindustries. Water risk was represented by waterBeta®, an extension of portfolio theory and avolatility signal that represents the excess water risk from extreme events uncorrelated to thegeneral market trends. A model to estimate waterBeta® was developed prior and was tested toassess the water-impacted stock volatility profile of the companies. After filtering out the systemicmarket risk, waterBeta® is an idiosyncratic market risk metric with seasonal attributes thatmeasures embedded water risk in stocks relative to the industry benchmark. The results show thatutilities and semiconductors industries have higher stock volatility than the other sample industriesdue to exposure to water risk and that companies within each industry have a different volatilityprofile depending on the risk management response strategies to water related events. Suchinformation can be used by investors to guide investment decisions, adjust the asset allocations inportfolios, or structure water-risk informed indexes to capture ;;water alpha’.