Climate Change Concerns and the Performance of Green Versus Brown Stocks

National Bank of Belgium, Working Paper Research, October 2020 No 395

46 Pages Posted: 18 Dec 2020 Last revised: 27 Feb 2021

See all articles by David Ardia

David Ardia

HEC Montreal - Department of Decision Sciences

Keven Bluteau

HEC Montreal - Department of Decision Sciences; Ghent University - Department of Economics

Kris Boudt

Ghent University; Vrije Universiteit Brussel; Vrije Universiteit Amsterdam

Koen Inghelbrecht

Ghent University - Department of Economics

Date Written: October 2, 2020

Abstract

We empirically test the prediction of Pastor, Stambaugh, and Taylor (2020) that green firms outperform brown firms when concerns about climate change increase unexpect- edly, using data for S&P 500 companies from January 2010 to June 2018. To capture unexpected increases in climate change concerns, we construct a Media Climate Change Concerns index using news about climate change published by major U.S. newspapers. We find that when concerns about climate change increase unexpectedly, green firms’ stock prices increase, while brown firms’ decrease. Further, using topic modeling, we con- clude that climate change concerns affect returns both through investors updating their expectations about firms’ future cash flows and through changes in investors’ preferences for sustainability.

Keywords: Asset Pricing, Climate Change, Sustainable Investing, ESG, Greenhouse Gas Emission, Sentometrics, Textual Analysis

JEL Classification: G11, G18, Q54

Suggested Citation

Ardia, David and Bluteau, Keven and Boudt, Kris and Inghelbrecht, Koen, Climate Change Concerns and the Performance of Green Versus Brown Stocks (October 2, 2020). National Bank of Belgium, Working Paper Research, October 2020 No 395, Available at SSRN: https://ssrn.com/abstract=3717722 or http://dx.doi.org/10.2139/ssrn.3717722

David Ardia

HEC Montreal - Department of Decision Sciences ( email )

3000 Côte-Sainte-Catherine Road
Montreal, QC H2S1L4
Canada

Keven Bluteau (Contact Author)

HEC Montreal - Department of Decision Sciences ( email )

3000 Côte-Sainte-Catherine Road
Montreal, QC H2S1L4
Canada

Ghent University - Department of Economics ( email )

Belgium

Kris Boudt

Ghent University ( email )

Sint-Pietersplein 5
Gent, 9000
Belgium

Vrije Universiteit Brussel ( email )

Pleinlaan 2
http://www.vub.ac.be/
Brussels, 1050
Belgium

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

Koen Inghelbrecht

Ghent University - Department of Economics ( email )

Sint-Pietersplein 5
Ghent, B-9000
Belgium
+32 9 264 89 77 (Phone)

HOME PAGE: http://users.ugent.be/~kjinghel/

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