Carbon Risk Premium and Worries about Climate Change

39 Pages Posted: 18 Oct 2021 Last revised: 30 Nov 2023

See all articles by Angelo Moretti

Angelo Moretti

Utrecht University - Faculty of Social and Behavioural Sciences

Caterina Santi

University of Liège - HEC Liège

Date Written: October 14, 2021

Abstract

This paper sheds light on the impact of investor worries about climate change on the pricing of emission (carbon-intensive) and clean (low-emission) stocks. We estimate the carbon risk premium in a cross-section of over 4,800 firms in 21 countries. We do not find evidence of a carbon risk premium when investor worries about climate change are low. Moreover, the carbon premium is significant for medium-high quantiles of the return distribution when investors’ worries are high. Overall, our results are consistent with an interpretation that non-worried investors are not demanding compensation for their exposure to carbon emission risk.

Keywords: Public Attitudes, Climate Change, Climate Finance, Asset Pricing, Europe.

JEL Classification: C21, C83, G10, G12, Q54.

Suggested Citation

Moretti, Angelo and Santi, Caterina, Carbon Risk Premium and Worries about Climate Change (October 14, 2021). Available at SSRN: https://ssrn.com/abstract=3942738 or http://dx.doi.org/10.2139/ssrn.3942738

Angelo Moretti

Utrecht University - Faculty of Social and Behavioural Sciences ( email )

Heidelberglaan 8
Utrecht, 3584
Netherlands

Caterina Santi (Contact Author)

University of Liège - HEC Liège ( email )

Rue Louvrex 14
Liège, 4000
Belgium

HOME PAGE: http://www.caterinasanti.com

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