The Market Says Climate Change Is Happening

Reason ^ | March 5, 2019 | Ronald Bailey

[karpov]

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 formed."

In 2001, the CME created a weather futures market enabling traders to hedge against losses stemming from fluctuations in the weather. As the researchers explain, the predominant contracts are based on heating and cooling degree days, which are indexed to 65 degrees Fahrenheit and encompass eight cities scattered across the United States. Cooling degree days (CDD) measure by how much and for how long temperatures exceed 65 degrees and thus require cooling. Conversely, heating degree days (HDD) measure by how much and for how long temperature fall below 65 degrees and thus require heating. The CDDs are traded for the months of May, June, July, August, and September, and the HDDs are traded for the months of November, December, January, February, and March. The payoff of these contracts is based on the cumulative difference between the daily temperature and 65 degrees Fahrenheit during a certain period of time, usually one month.

The notional value of weather futures and options traded on the CME in the last year adds up to more than $360 million, according to the Wall Street Journal. Over the counter trading values are much larger.

[RoosterRedux]

The biggest lie is that (even if man contributes to climate change--and that is impossible to prove) man can prevent the climate from changing.

[Antoninus]

Really? Someone tell the real-estate brokers in Manhattan, Miami Beach, and other locales that will be underwater in 10 years. LOL.

[MNJohnnie]

So a fake comity exchange was set up to validate a political opinion and it, surpise, validates the political opinion?

And this circular logic is “news”.

[Freedom_Is_Not_Free]

Somebody is going to lose their ass on this, like the government wasted millions on Solyndra. Private companies who are pricing in this hoax are going to get killed. I’m not talking about advertising, because their are tens of millions of stupid snowflakes who believe in globull warming, so those ads are actually having an impact on the stupid and gullible.

But actually pricing high temperatures and sea level rise into real things is a massive money loser. The government can do that all day. The private sector can’t.

I don’t want a 20 years cold snap but it is looking like that is what it is going to take to wake up the stupid and gullible snoflakes that believe in this sh.. garbage.

[Larry Lucido]

Reason has lost its mind.

[Larry Lucido]

5 billion years of climate says climate changes. Markets respond to wars and rumors. Markets are idiots.

[Kid Shelleen]

The market for mansions on Martha’s Vineyard must be tanking as well. In general all beach front property should be worthless pretty soon.

[catnipman]

“market expectations about climate change looks at the price trends of Chicago Mercantile Exchange (CME) weather futures contracts. “

i wonder if “the market” will predict “climate change” as well as “the market” predicted the demand for tuplip bulbs and sardines back in the day?

[Gil4]

"The evidence shows that financial markets fully incorporate climate model idiot politician projections,"