Carbon Beta: A Market-Based Measure of Climate Risk

59 Pages Posted: 18 Nov 2021 Last revised: 7 Sep 2022

See all articles by Joop Huij

Joop Huij

Erasmus University - Rotterdam School of Management; Robeco; Erasmus University Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM)

Dries Laurs

Vrije Universiteit Amsterdam, Department of Finance, School of Business and Economics

Philip A. Stork

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute

Remco C. J. Zwinkels

Vrije Universiteit Amsterdam; Tinbergen Institute

Date Written: September 6, 2022

Abstract

We estimate asset-level climate risk exposure by regressing stock returns on a pollutive minus clean portfolio. This climate risk measure, or ‘carbon beta’, has relatively high levels of availability,
coverage, and informativeness. We study the interaction of carbon betas with several proxies for realisations in climate risk. Returns to stocks with high carbon betas are lower during months in which climate change is more frequently discussed in the news, during months in which temperatures are abnormally high, and during exceptionally dry months. Variation in carbon betas correlates with green patent issuance and forward-looking measures of climate risk.

Keywords: Climate change, carbon risk, climate finance, asset pricing

JEL Classification: G11, G12, Q54

Suggested Citation

Huij, Joop and Laurs, Dries and Stork, Philip A. and Zwinkels, Remco C.J., Carbon Beta: A Market-Based Measure of Climate Risk (September 6, 2022). Available at SSRN: https://ssrn.com/abstract=3957900 or http://dx.doi.org/10.2139/ssrn.3957900

Joop Huij

Erasmus University - Rotterdam School of Management ( email )

P.O. Box 1738
Rotterdam, 3000 DR
Netherlands

HOME PAGE: http://www.rsm.nl/jhuij

Robeco

Rotterdam, 3014DA
Netherlands

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

Erasmus University Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
Rotterdam, 3000 DR
Netherlands

Dries Laurs (Contact Author)

Vrije Universiteit Amsterdam, Department of Finance, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Philip A. Stork

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Remco C.J. Zwinkels

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, NH 1081 HV
Netherlands
+31205985220 (Phone)

HOME PAGE: http://https://research.vu.nl/en/persons/remco-zwinkels

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

HOME PAGE: http://https://tinbergen.nl/person/1574/remco-zwinkels

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