Climate-Change Risk and Stocks’ Return

58 Pages Posted: 28 Dec 2022 Last revised: 24 May 2023

See all articles by Vu Le Tran

Vu Le Tran

Gjensidige Pensjonsforsikring AS; Nord University

Thomas Leirvik

Nord University; Nord University

Morten Parschat

Independent

Petter Schive

Independent

Date Written: May 24, 2023

Abstract

We use a climate risk dataset generated by the Google BERT AI algorithm and refined by Kölbel et al. (2022) to assess the impact of climate on stock returns. Our findings show that physical climate risk is reflected in US stock markets with a positive and statistically significant premium of 1.5-2.9% per year, which cannot be attributed to other known risk factors or industry differences. There is no consistent premium related to climate transitional risk. The physical climate risk premium has grown stronger post-Paris Agreement, 3.0-4.0% per year, potentially due to increased investor attention to climate-related matters.

Keywords: Climate Change, Physical Climate Risk, Stocks' Return, Sustainable Investment, Green Premium

JEL Classification: G11, G12

Suggested Citation

Tran, Vu Le and Leirvik, Thomas and Parschat, Morten and Schive, Petter, Climate-Change Risk and Stocks’ Return (May 24, 2023). Available at SSRN: https://ssrn.com/abstract=4306875 or http://dx.doi.org/10.2139/ssrn.4306875

Vu Le Tran (Contact Author)

Gjensidige Pensjonsforsikring AS ( email )

Schweigaards gate 14
Oslo, 0185
Norway

Nord University ( email )

Universitetsalléen 11
8049 Bodo
Norway

Thomas Leirvik

Nord University ( email )

Universitetsalléen 11
8049 Bodo
Norway
94818526 (Phone)

Nord University ( email )

Bodø, 8049
Norway

Morten Parschat

Independent

Petter Schive

Independent

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