The Impact of Green Investors on Stock Prices

40 Pages Posted: 15 Apr 2024

See all articles by Gong Cheng

Gong Cheng

Bank for International Settlements (BIS); European Stability Mechanism

Eric Jondeau

University of Lausanne - Faculty of Business and Economics (HEC Lausanne); Swiss Finance Institute

Benoît Mojon

Bank for International Settlements (BIS)

Dimitri Vayanos

London School of Economics; Center for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: April 2024

Abstract

We study the impact of green investors on stock prices in a dynamic equilibrium model where investors are green, passive or active. Green investors track an index that progressively excludes the stocks of the brownest firms; passive investors hold a value-weighted index of all stocks; and active investors hold a mean-variance efficient portfolio of all stocks. Contrary to the literature, we find large drops in the stock prices of the brownest firms and moderate increases for greener firms. These effects occur primarily upon the announcement of the green index's formation and continue during the exclusion phase. The announcement effects imply a first-mover advantage to early adopters of decarbonisation strategies.

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Suggested Citation

Cheng, Gong and Jondeau, Eric and Mojon, Benoît and Vayanos, Dimitri, The Impact of Green Investors on Stock Prices (April 2024). NBER Working Paper No. w32317, Available at SSRN: https://ssrn.com/abstract=4794366

Gong Cheng (Contact Author)

Bank for International Settlements (BIS) ( email )

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European Stability Mechanism ( email )

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Eric Jondeau

University of Lausanne - Faculty of Business and Economics (HEC Lausanne) ( email )

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Benoît Mojon

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Dimitri Vayanos

London School of Economics ( email )

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Center for Economic Policy Research (CEPR)

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United States

National Bureau of Economic Research (NBER)

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