The pricing of global temperature shocks in the cost of equity capital

Richard P. Gregory

Journal of International Financial Markets, Institutions and Money, 2021, vol. 72, issue C

Abstract: Using an APT model where global temperature shocks are a systematically priced factor, the risk premium is significant and positive. Evidence is provided that positive exposure to temperature shocks is related to increasing CO2 emissions by industry. The global impact on the cost of equity could be as high as 2.8% per year, implying a global GDP loss of $2.2 Trillion per year due to global temperature shocks.

Keywords: Asset pricing; Climate change; Cost of capital; Tracking portfolio (search for similar items in EconPapers)
JEL-codes: G12 Q54 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:72:y:2021:i:c:s104244312100038x

DOI: 10.1016/j.intfin.2021.101319

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