Carbon Risk

Item Type Monograph (Working Paper)
Abstract

We investigate carbon risk in global equity prices. We develop a measure of carbon risk using industry standard databases and study return differences between brown and green firms. We observe two opposing effects: Brown firms are associated with higher average returns, while decreases in the greenness of firms are associated with lower announcement returns. We construct a carbon risk factor-mimicking portfolio to understand carbon risk through the lens of a factor-based asset pricing model. While carbon risk explains systematic return variation well, we do not find evidence of a carbon risk premium. We show that this may be the case because of: (1) the opposing price movements of brown firms and firms becoming greener, and (2) that carbon risk is associated with unpriced cash-flow changes rather than priced discount-rate changes. We extend our analysis to different geographic regions and time periods to confirm the missing risk premium.

Authors Görgen, Maximilian; Jacob, Andrea; Nerlinger, Martin; Riordan, Ryan; Rohleder, Martin & Wilkens, Marco
Language English
Subjects business studies
economics
finance
HSG Classification contribution to scientific community
Date 2020
Series Name Working Paper
Official URL https://papers.ssrn.com/sol3/papers.cfm?abstract_i...
Depositing User Prof. Ph.D Martin Nerlinger
Date Deposited 26 Jul 2021 23:09
Last Modified 26 Jul 2021 23:10
URI: https://www.alexandria.unisg.ch/publications/263559

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Citation

Görgen, Maximilian; Jacob, Andrea; Nerlinger, Martin; Riordan, Ryan; Rohleder, Martin & Wilkens, Marco: Carbon Risk. Working Paper, 2020,

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https://www.alexandria.unisg.ch/id/eprint/263559
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