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
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Citations: View citations in EconPapers (71)

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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)
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