The Pricing of Global Temperature Shocks in the Cost of Equity Capital

56 Pages Posted: 22 May 2020

Date Written: April 26, 2020

Abstract

Using an APT model where global temperature shocks are a systematically priced factor, the risk premium is significant and positive. Evidence is provided that positive exposure to temperature shocks is related to increasing CO2 emissions by an industry or region. The global impact on the cost of equity could be as high as 2.8% per year, implying a global GDP loss of $2.2 Trillion per year due to global temperature shocks.

Keywords: asset pricing, climate change, cost of capital, tracking portfolio

JEL Classification: G12, Q54.

Suggested Citation

Gregory, Richard Paul, The Pricing of Global Temperature Shocks in the Cost of Equity Capital (April 26, 2020). Available at SSRN: https://ssrn.com/abstract=3585742 or http://dx.doi.org/10.2139/ssrn.3585742

Richard Paul Gregory (Contact Author)

East Tennessee State University ( email )

Department of Economics and Finance
Johnson City, TN 37614
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
50
Abstract Views
253
PlumX Metrics