Climate Change Concerns and the Performance of Green Versus Brown Stocks

68 Pages Posted: 18 Dec 2020 Last revised: 9 May 2022

See all articles by David Ardia

David Ardia

HEC Montreal - Department of Decision Sciences

Keven Bluteau

Université de Sherbrooke - Faculty of Administration

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 (2021) that green firms outperform brown firms when concerns about climate change increase unexpectedly, using data for S&P 500 companies from January 2010 to June 2018. To capture unexpected increases in climate change concerns, we construct a daily Media Climate Change Concerns index using news about climate change published by major U.S. newspapers and newswires. We find that on days with an unexpected increase in climate change concerns, the green firms’ stock prices tend to increase while brown firms’ prices decrease. Further, using topic modeling, we conclude that this effect holds for concerns about both transition and physical climate change risk. Finally, we decompose returns into cash flow and discount rate news components and find that an unexpected increase in climate change concerns is associated with an increase (decrease) in the discount rate of brown (green) firms.

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). 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)

Université de Sherbrooke - Faculty of Administration ( email )

Sherbrooke, Québec J1K 2R1
Canada

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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