Investor Sentiment and Climate News in Canada:Asset Pricing Effects and Sector Rotation Under Transition Narratives

Mirlinda Jashanica

doi:10.5281/zenodo.18644963

Authors

Mirlinda Jashanica University of Toronto – Rotman School of Management / University of Toronto Mississauga (UTM) https://orcid.org/0000-0001-9327-8324

DOI:

https://doi.org/10.5281/zenodo.18644963

Keywords:

Investor sentiment, Climate news, Asset pricing, Sector rotation, Climate transition, Canada

Abstract

The growing prominence of climate change as an economic and financial risk has fundamentally altered the information environment faced by investors. In advanced economies such as Canada, climate-related news—ranging from policy announcements and regulatory reforms to extreme weather events and transition narratives—has become an increasingly salient driver of investor sentiment. This paper examines how climate-related news affects investor sentiment and, in turn, asset prices and sectoral capital allocation in Canadian financial markets. Using a novel composite index of climate news intensity and sentiment derived from textual analysis of major Canadian media sources, the study investigates the short- and medium-term effects of climate news on asset pricing across equity markets. The analysis also looks at how different sectors respond to climate news, especially comparing carbon-heavy industries with those that are more environmentally friendly or transitioning. Using various statistical methods, the paper finds important connections between climate news, how investors feel, extra profits, and market ups and downs. The results indicate that negative climate transition news is associated with heightened market uncertainty, negative abnormal returns in carbon-intensive sectors, and a reallocation of capital toward renewable energy, technology, and low-emission industries. Conversely, positive transition narratives—such as credible climate policy commitments and green investment announcements—are linked to improved investor sentiment and favourable asset pricing effects in transitionallyaligned sectors. These findings add to the literature on behavioural finance, climate finance, and asset pricing by highlighting the role of narrative-driven sentiment in shaping market outcomes during periods of structural transition.

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