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Type Journal Article
Scope Discipline-based scholarship
Title Pricing climate change exposure
Organization Unit
Authors
  • Zacharias Sautner
  • Laurence Van Lent
  • Grigory Vilkov
  • Ruishen Zhang
Item Subtype Original Work
Refereed Yes
Status Published in final form
Language
  • English
Journal Title Management Science
Publisher Institute for Operations Research and the Management Science
Geographical Reach international
ISSN 0025-1909
Volume 69
Number 12
Page Range 7540 - 7561
Date 2023
Abstract Text We estimate the risk premium for firm-level climate change exposure among S&P 500 stocks and its time-series evolution between 2005 to 2020. Exposure reflects the attention paid by market participants in earnings calls to a firm’s climate-related risks and opportunities. When extracted from realized returns, the unconditional risk premium is insignificant but exhibits a period with a positive risk premium before the financial crisis and a steady increase thereafter. Forward-looking expected return proxies deliver an unconditionally positive risk premium with maximum values of 0.5%–1% p.a., depending on the proxy, between 2011 and 2014. The risk premium has been lower since 2015, especially when the expected return proxy explicitly accounts for the higher opportunities and lower crash risks that characterize high-exposure stocks. This finding arises as the priced part of the risk premium primarily originates from uncertainty about climate-related upside opportunities. In the time series, the risk premium is negatively associated with green innovation; Big Three holdings; and environmental, social, and governance fund flows and positively associated with climate change adaptation programs.
Digital Object Identifier 10.1287/mnsc.2023.4686
Other Identification Number merlin-id:23837
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Keywords Management Science and Operations Research, Strategy and Management