Climate change salience and international equity returns

David Parsley and Helen Popper

Journal of Economic Behavior & Organization, 2024, vol. 226, issue C

Abstract: In this study, we examine climate change salience risk in international equity markets. We find that: (1) exposure to a single, broad measure of climate change salience risk is pervasive; notably it arises regardless of firms’ greenhouse gas emissions, (2) the exposure is priced – a return discount emerges for equities that perform well when climate change salience is high, and (3) the pricing is nonlinear – the return discount itself rises when the gauge of climate change salience is high. We also find that firms in countries with low weather-related losses and those in countries with high per-capita GDP exhibit greater marginal exposure to climate change salience risk. Overall, the results suggest climate change salience risk is not merely a reflection of narrowly defined stranded assets or of investor distaste for high-emission firms; instead, the findings indicate that climate change salience risk is widespread and nondiversifiable, and we interpret its pricing as reflecting a compensated risk exposure.

Keywords: Climate change risk; Climate change salience; Climate finance; Carbon risk; Global warming; Climate beta; International financial markets; Global equity markets (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:226:y:2024:i:c:s0167268124002877

DOI: 10.1016/j.jebo.2024.106685

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