Climate Change and Long-Run Discount Rates: Evidence from Real Estate

Abrupt climate change

Stefano Giglio, Matteo Maggiori, Krishna Rao, Johannes Stroebel, Andreas Weber and Stijn Van Nieuwerburgh

The Review of Financial Studies, 2021, vol. 34, issue 8, 3527-3571

Abstract: We show that housing markets provide information about the appropriate discount rates for valuing investments in climate change abatement. Real estate is exposed to both consumption and climate risk and its term structure of discount rates is downward sloping, reaching 2.6% for payoffs beyond 100 years. We use a tractable asset pricing model that incorporates features of climate change to show that the term structure of discount rates for climate-hedging investments is thus upward sloping but bounded above by the risk-free rate. At horizons at which risk-free rates are unavailable, the estimated housing discount rates provide an upper bound.

JEL-codes: G11 G12 R30 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (68)

Downloads: (external link)
http://hdl.handle.net/10.1093/rfs/hhab032 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Climate Change and Long-Run Discount Rates: Evidence from Real Estate (2015)
Working Paper: Climate Change and Long-Run Discount Rates: Evidence from Real Estate (2015)
Working Paper: Climate Change and Long-Run Discount Rates: Evidence from Real Estate (2015)
Working Paper: Climate Change and Long-Run Discount Rates: Evidence from Real Estate (2015)
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:oup:rfinst:v:34:y:2021:i:8:p:3527-3571.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Review of Financial Studies is currently edited by Itay Goldstein

More articles in The Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().