How Easy is it for Investment Managers to Deploy their Talent in Green and Brown Stocks?
10 Pages Posted: 17 Jan 2022 Last revised: 18 May 2022
Date Written: January 14, 2022
We explore the realized alpha-performance heterogeneity in green and brown stocks’ universes using the peer performance ratios of Ardia and Boudt (2018). Focusing on S&P 500 index firms over 2014-2020 and defining peer groups in terms of firms’ greenhouse gas emission levels, we find that, on average, about 20% of the stocks differentiate themselves from their peers in terms of future performance. We see a much higher time-variation in this opportunity set within brown stocks. Furthermore, the performance heterogeneity has decreased over time, especially for green stocks, implying that it is now more difficult for investment managers to deploy their skills when choosing among low-GHG intensity stocks.
Keywords: Greenhouse gas emissions (GHG), climate finance, carbon finance, peer performance
JEL Classification: G11, G18, G24, Q01, Q54
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