Carbon Risk

67 Pages Posted: 10 Mar 2017 Last revised: 21 Jan 2020

See all articles by Maximilian Görgen

Maximilian Görgen

University of Augsburg

Andrea Jacob

University of Augsburg

Martin Nerlinger

University of Augsburg

Ryan Riordan

Queen's University - Smith School of Business

Martin Rohleder

University of Augsburg

Marco Wilkens

University of Augsburg

Date Written: December 16, 2019

Abstract

We investigate the role of carbon risk in global equity prices. High carbon risk firms (brown) are associated with higher returns and unexpected increases in carbon risk are associated with lower returns. We show that green firms are becoming greener faster than brown firms confounding asset pricing tests that use long-short portfolios. Additionally, we show that green and brown firm risk is better explained by unpriced re-evaluations of firm cash flows than by priced discount-rate changes, leading to a missing carbon risk premium. We extend our analysis to different geographic regions and time periods and confirm the missing risk premium.

Keywords: Carbon risk, climate finance, climate change, economic transition, asset pricing

JEL Classification: G12, G15, Q51, Q54

Suggested Citation

Görgen, Maximilian and Jacob, Andrea and Nerlinger, Martin and Riordan, Ryan and Rohleder, Martin and Wilkens, Marco, Carbon Risk (December 16, 2019). Available at SSRN: https://ssrn.com/abstract=2930897 or http://dx.doi.org/10.2139/ssrn.2930897

Maximilian Görgen

University of Augsburg ( email )

Universitätsstr. 2
Augsburg, 86159
Germany

Andrea Jacob

University of Augsburg ( email )

Universitätsstr. 2
Augsburg, 86159
Germany

Martin Nerlinger

University of Augsburg ( email )

Universitätsstr. 2
Augsburg, 86159
Germany

Ryan Riordan

Queen's University - Smith School of Business ( email )

Smith School of Business, Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada

Martin Rohleder

University of Augsburg ( email )

Universitaetsstr. 16
Augsburg, 86159
Germany
+49 821 598 4120 (Phone)

Marco Wilkens (Contact Author)

University of Augsburg ( email )

Universitaetsstr. 16
Augsburg, 86159
Germany
+49 821 598 4124 (Phone)
+49 821 598 4223 (Fax)

HOME PAGE: http://www.wiwi.uni-augsburg.de/bwl/wilkens/team/wilkens_marco/

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