When Do Investors Go Green? Evidence from a Time-Varying Asset-Pricing Model

51 Pages Posted: 14 Apr 2023

See all articles by Lucia Alessi

Lucia Alessi

affiliation not provided to SSRN

Elisa Ossola

University of Milano-Bicocca

Roberto Panzica

Bank of Portugal

Abstract

This paper studies the evolution of the greenium, i.e. a risk premium linked to firms’ carbon emissions and environmental transparency, based on individual stock returns. We estimate an asset pricing model with time-varying risk premia, where the greenium is associated with a priced ‘greenness and transparency’ factor. 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 oil price increases and increases in the price of critical minerals for the low-carbon transition, are associated with increases in the greenium.

Keywords: Climate risk, environmental disclosure, conditional factor models, asset pricing

Suggested Citation

Alessi, Lucia and Ossola, Elisa and Panzica, Roberto, When Do Investors Go Green? Evidence from a Time-Varying Asset-Pricing Model. Available at SSRN: https://ssrn.com/abstract=4418646 or http://dx.doi.org/10.2139/ssrn.4418646

Lucia Alessi

affiliation not provided to SSRN

Elisa Ossola

University of Milano-Bicocca ( email )

Belgium

Roberto Panzica (Contact Author)

Bank of Portugal ( email )

Rua Francisco Ribeiro, 2
Lisbon, 1150-165
Portugal

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
39
Abstract Views
185
PlumX Metrics