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Martin Nerlinger
Title
Prof. Dr.
Last Name
Nerlinger
First name
Martin
Email
martin.nerlinger@unisg.ch
ORCID
Phone
+41 71 224 70 31
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PublicationType: working paper
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PublicationCarbon Risk( 2020)
;Görgen, Maximilian ;Jacob, Andrea ;Riordan, Ryan ;Rohleder, MartinWilkens, MarcoWe 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.Type: working paper