When do investors go green? Evidence from a time-varying asset-pricing model

Lucia Alessi, Elisa Ossola () and Roberto Panzica ()
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Roberto Panzica: European Commission, https://ec.europa.eu/jrc/en

No 2021-13, JRC Working Papers in Economics and Finance from Joint Research Centre, European Commission

Abstract: This paper studies the evolution of the greenium, i.e. a risk premium linked to firms' greenness and environmental transparency, based on individual stock returns. We estimate an asset pricing model with time-varying risk premia, where the greenium is associated to a priced `greenness and transparency' factor, which considers both companies' greenhouse gas emissions and the quality of their environmental disclosures. We show that investors in the European equity market tend to accept lower returns, ceteris paribus, to hold greener and more transparent assets when the shift of the economy towards low-carbon becomes more credible. This happened after the Paris Agreement, the first Global Climate Strike and the announcement of the EU Green Deal. Signals going in the opposite direction, such as the US withdrawal from the Paris Agreement, increasing fossil fuel prices and more bad news about climate change, are associated with increases in the greenium.

Keywords: climate risk; environmental disclosure; conditional factor models; asset pricing (search for similar items in EconPapers)
JEL-codes: G01 G11 G12 Q01 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2021-12
New Economics Papers: this item is included in nep-ene, nep-env and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published by the European Commission, 2021

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Journal Article: When do investors go green? Evidence from a time-varying asset-pricing model (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:jrs:wpaper:202113

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