Climate Sensitivity and Mutual Fund Performance

50 Pages Posted: 6 May 2021 Last revised: 13 May 2022

See all articles by Thang Ho

Thang Ho

Lancaster University - Department of Accounting and Finance

Date Written: May 5, 2021

Abstract

In the presence of rising concern about climate change that potentially affects risk and return of investors’ portfolio companies, active investors might have dispersed climate risk exposures. We compute mutual fund covariance with market-wide climate change news index and find that high (positive) climate beta funds outperform low (negative) climate beta funds by 0.24% per month on a risk-adjusted basis. High climate beta funds tilt their holdings toward stocks with high potential to hedge against climate change. In the cross section, such stocks yield higher excess returns, which are driven by greater pricing pressure and superior financial performance over our sample period.

Keywords: mutual funds, climate change, fund-level climate beta, stock-level climate beta, returns.

JEL Classification: G11, G12, G23, Q5

Suggested Citation

Ho, Thang, Climate Sensitivity and Mutual Fund Performance (May 5, 2021). Available at SSRN: https://ssrn.com/abstract=3839888 or http://dx.doi.org/10.2139/ssrn.3839888

Thang Ho (Contact Author)

Lancaster University - Department of Accounting and Finance ( email )

Lancaster, Lancashire LA1 4YX
United Kingdom

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