‘Brown’ Risk or ‘Green’ Opportunity? The Dynamic Pricing of Climate Transition Risk on Global Financial Markets
There exists mixed evidence about the pricing of climate transition risk on financial markets. While some scholars were able to find a “brown” premium, others identified a “green” premium for stocks benefitting from the climate transition. I contribute to this debate methodologically by proposing a combination of a firm’s climate transition risk exposure assessment based on a sector/technology classification with financial factor models. Thereby, I complement approaches relying on contested ESG and CO2 data, which have been used in most previous pricing studies, but might significantly bias results. Moreover, I contribute empirically by dynamically comparing the pricing of brown and green companies on global financial stock markets at the same time. I find that green stocks significantly outperform both brown stocks as well as the market average when controlling for well-established risk factors. This finding is also robust when looking at specific climate sensitive sectors, namely the transportation, utility and energy sector. Interestingly, the green outperformance accelerated after the Paris Agreement, solidifying the hypothesis that green stocks profited from an unexpectedly strong increase in climate transition risk concern from both consumers and investors. I also find a small brown outperformance, which, however, vanishes when excluding the last 2 years of the time frame, which brought unprecedented increases in energy prices. Moreover, I calculate a technology-based Brown Minus Green Factor. This BMG factor can be utilized to test empirically whether brown stocks will start to outperform green stocks, in line with the theoretical expectation that brown stocks yield higher expected returns. For now, I add the tentative finding that brown portfolios carry substantially higher dividend yields in 2023, indicating that brown investors expect higher payouts for holding riskier assets
Year of publication: |
[2023]
|
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Authors: | Fliegel, Philip |
Publisher: |
[S.l.] : SSRN |
Subject: | Welt | World | Internationaler Finanzmarkt | International financial market | Klimawandel | Climate change | Risiko | Risk |
Saved in:
freely available
Extent: | 1 Online-Ressource (34 p) |
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Type of publication: | Book / Working Paper |
Language: | English |
Notes: | Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments July 6, 2023 erstellt |
Other identifiers: | 10.2139/ssrn.4502257 [DOI] |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10014353292
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