Carbon Home Bias of European Investors

45 Pages Posted: 15 Jul 2020

See all articles by Martijn Adriaan Boermans

Martijn Adriaan Boermans

De Nederlandsche Bank; Utrecht University - School of Economics

Rients Galema

Utrecht University - School of Economics

Date Written: June 22, 2020

Abstract

We study how investor’s persistent preference to invest more in the home market — “home bias” — is affecting investor’s efforts to mitigate risks associated with climate change. When investors have a tendency to tilt their portfolio towards domestic assets, the carbon intensity in the home market may well affect the carbon exposures of their portfolios and hence climate risk. This paper analyzes the carbon exposure and home bias of stock portfolios across a wide range of different investors from the euro area using a unique stock-level holdings data. We find that at the stock-level, carbon-intensive firms have higher ownership when the stocks are from the EU-home market. At the portfolio level, higher carbon footprints of euro area investors are related to home bias. The bias to invest more in carbon-intensive firms from the domestic and EU-home market is associated with higher stocks returns.

Keywords: home bias, carbon footprint, divestment, securities holdings statistics

JEL Classification: G11, G15, G23, H55, Q54, Q56

Suggested Citation

Boermans, Martijn Adriaan and Galema, Rients, Carbon Home Bias of European Investors (June 22, 2020). Available at SSRN: https://ssrn.com/abstract=3632723 or http://dx.doi.org/10.2139/ssrn.3632723

Martijn Adriaan Boermans (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC
Netherlands

HOME PAGE: http://www.uu.nl/leg/staff/MABoermans/0

Rients Galema

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC
Netherlands

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