Let's agree to disagree! On payoffs and green tastes in green energy investments

Alex Ng and Di Zheng

Energy Economics, 2018, vol. 69, issue C, 155-169

Abstract: Of strong debate is whether firms lose in costs or benefit in financial performance, (e.g. savings) for being environmentally responsible. We examine the “Disagreement, tastes and asset pricing” theory of Fama and French (2007) which states that investors' disagreement over payoffs and consumer tastes can substitute for financial performance. Thus, it suggests that green energy firms could have comparable value with non-green firms. Green energy firms can represent an asset which has high disagreement over payoffs and offer investors a pro-environmental choice. We show disagreement in payoffs and green tastes moderate the effects of investor demand which influences green firm performance, but not non-green firm performance. Consequently, we show that green energy firms perform at least as well versus matching non-green energy firms with risk adjusted performance and alpha, and better performance than the S&P 500 Energy index in the last 24years. Therefore, green investors are neither bearing a cost nor getting suboptimal financial performance from energy firms who pursue environmental objectives. Our results support the role of investor preferences for disagreement and tastes, investor demand and asset pricing of socially responsible investments.

Keywords: Energy; Alternative investments; Environment; Performance; Disagreement; Tastes (search for similar items in EconPapers)
JEL-codes: G11 G12 Q40 Q42 Q51 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S014098831730364X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:69:y:2018:i:c:p:155-169

DOI: 10.1016/j.eneco.2017.10.023

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().