Green and brown returns in a production economy

Ivan Jaccard, Thore Kockerols and Yves Schüler

No 3030, Working Paper Series from European Central Bank

Abstract: Does it pay to invest in green companies? In countries where a market for carbon is functioning, such as those within the European Union, our findings suggest that it should be beneficial. Using a sample of green and brown European firms, we initially demonstrate that green companies have outperformed brown ones in recent times. Subsequently, we develop a production economy model in which brown firms acquire permits to emit carbon into the atmosphere. We find that the presence of a well-functioning carbon market could account for the green equity premium observed in our data. Incorporating a preference for green financial assets is also unlikely to overturn our results. JEL Classification: E32, Q51, G18

Keywords: asset pricing; composite habits; equity premium; general equilibrium; monopolistic competition (search for similar items in EconPapers)
Date: 2025-02
New Economics Papers: this item is included in nep-eec, nep-ene and nep-fdg
Note: 737337
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20253030

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