EconPapers    
Economics at your fingertips  
 

Temperature shocks and the cost of equity capital: Implications for climate change perceptions

Ronald Balvers (), Ding Du and Xiaobing Zhao

Journal of Banking & Finance, 2017, vol. 77, issue C, 18-34

Abstract: Financial market information can provide an objective assessment of losses anticipated from temperature changes. In an APT model in which temperature shocks are a systematic risk factor, the risk premium is significantly negative, loadings for most assets are negative, and asset portfolios in more vulnerable industries have stronger negative loadings on a temperature shock factor. Weighted average increases in the cost of equity capital attributed to uncertainty about temperature changes are 0.22 percent, implying a present value loss of 7.92 percent of wealth. These costs represent a new channel that may contribute to cost of climate change assessment.

Keywords: Asset pricing; Climate change; Cost of capital; Tracking portfolios (search for similar items in EconPapers)
JEL-codes: G12 Q54 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426616302631
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:jbfina:v:77:y:2017:i:c:p:18-34

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Series data maintained by Dana Niculescu ().

 
Page updated 2017-11-14
Handle: RePEc:eee:jbfina:v:77:y:2017:i:c:p:18-34