Are Carbon Emissions Associated with Stock Returns?
84 Pages Posted: 9 Mar 2021 Last revised: 16 Sep 2021
Date Written: March 8, 2021
An influential emerging literature, led by Bolton and Kacperczyk (2021a), documents strong correlations between unscaled raw emissions and both stock returns and operating performance. We re-examine that data, using a sample of 2,729 U.S. firms from 2005-2019, and conclude that the associations between unscaled emissions and both stock returns and operating performance disappear once we account for firm size, industry clustering of standard errors, and vendor-estimated versus firm-disclosed emissions, both in the U.S. sample and in Europe. Investors might want to be cautious about assuming that carbon emissions are priced by equity markets.
Keywords: Carbon Emissions, Alpha, Stock Returns, Operating Performance, Tobin’s Q, Trucost, Estimated Emissions
JEL Classification: M14, G23, G34
Suggested Citation: Suggested Citation