Are Carbon Emissions Associated with Stock Returns?

84 Pages Posted: 9 Mar 2021 Last revised: 16 Sep 2021

See all articles by Jitendra Aswani

Jitendra Aswani

Fordham University

Aneesh Raghunandan

London School of Economics

Shivaram Rajgopal

Columbia Business School

Date Written: March 8, 2021

Abstract

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

Aswani, Jitendra and Raghunandan, Aneesh and Rajgopal, Shivaram, Are Carbon Emissions Associated with Stock Returns? (March 8, 2021). Columbia Business School Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=3800193 or http://dx.doi.org/10.2139/ssrn.3800193

Jitendra Aswani

Fordham University ( email )

113 West 60th Street
Bronx, NY 10458
United States
9176055492 (Phone)

Aneesh Raghunandan (Contact Author)

London School of Economics ( email )

United Kingdom

Shivaram Rajgopal

Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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