EconPapers    
Economics at your fingertips  
 

Green asset pricing

Ghassane Benmir, Ivan Jaccard and Gauthier Vermandel

No 2477, Working Paper Series from European Central Bank

Abstract: This paper demonstrates that empirically grounding the discount factor significantly influences the determination of the carbon price. Using two complementary nonlinear statistical approaches, we assess which utility formulations and corresponding stochastic discount factors best align with U.S. data. We provide evidence that habit formation is essential for capturing the time variation in the stochastic discount factor necessary to match the data. This increased time variation raises the carbon price by 32% and makes it five times more procyclical compared to standard models. The heightened procyclicality reduces aggregate risk, the risk premium, and the need for precautionary savings. JEL Classification: Q58, G12, E32

Keywords: climate change; equity premium puzzle; optimal policy; stochastic discount factor (search for similar items in EconPapers)
Date: 2020-10
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
Note: 737337
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecb.wp2477~e636f9c496.en.pdf (application/pdf)

Related works:
Working Paper: Green asset pricing (2022)
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:ecb:ecbwps:20202477

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().

 
Page updated 2024-12-28
Handle: RePEc:ecb:ecbwps:20202477