Dissecting green returns

Lubos Pastor, Robert Stambaugh and Lucian A. Taylor

Journal of Financial Economics, 2022, vol. 146, issue 2, 403-424

Abstract: Green assets delivered high returns in recent years. This performance reflects unexpectedly strong increases in environmental concerns, not high expected returns. German green bonds outperformed their higher-yielding non-green twins as the “greenium” widened, and U.S. green stocks outperformed brown as climate concerns strengthened. Despite that outperformance, we estimate lower expected returns for green stocks than for brown, consistent with theory. We estimate expected returns in two ways: ex ante, using implied costs of capital, and ex post, using realized returns purged of shocks from climate concerns and earnings. A theoretically motivated green factor explains much of value stocks’ recent underperformance.

Keywords: Sustainable investing; ESG; Environment; Climate change; Green bonds (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (152)

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Working Paper: Dissecting Green Returns (2022)
Working Paper: Dissecting Green Returns (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:146:y:2022:i:2:p:403-424

DOI: 10.1016/j.jfineco.2022.07.007

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