Abstract

This paper studies the option implied tail risk in the oil and gas industry around the unburnable carbon news of April 2009. It was arguably the first science news amplified by the media that stated that the value of the oil and gas industry is stranded. After controlling for the level of proved fossil fuel reserves and the return drop on the event day, I find that large and small companies are perceived as equally exposed to carbon risk. However, the risk persists only in some oil and gas firms. As expected, the level of fossil fuel reserves increases risk.