When do investors go green? Evidence from a time-varying asset-pricing model
Lucia Alessi,
Elisa Ossola and
Roberto Panzica
International Review of Financial Analysis, 2023, vol. 90, issue C
Abstract:
This study employs individual stock returns to examine the evolution of the greenium, which is the risk premium linked to firms’ carbon emissions and environmental transparency. We estimate an asset-pricing model with time-varying risk premia, in which the greenium is associated with a priced ‘greenness and transparency’ factor. We show that investors in the European equity market tend to accept lower returns, ceteris paribus, and hold greener and more transparent assets when economic shifts toward low carbon become more credible. This occurred after the Paris Agreement, the first global climate strike, and the announcement of the EU Green Deal. Opposite signals, such as increases in the prices of oil or critical minerals for the low-carbon transition, are associated with increases in the greenium; that is, more polluting firms are perceived as less risky.
Keywords: Climate risk; Environmental disclosure; Conditional factor models; Asset pricing (search for similar items in EconPapers)
JEL-codes: G01 G11 G12 Q01 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations:
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521923004143
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:finana:v:90:y:2023:i:c:s1057521923004143
DOI: 10.1016/j.irfa.2023.102898
Access Statistics for this article
International Review of Financial Analysis is currently edited by B.M. Lucey
More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().