Finance and climate change: assessing the impact of physical, transition, and regulation risks on asset pricing valuation

IF 1.5 Q3 BUSINESS, FINANCE
Benjamin Cisagara
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Abstract

This study examines how exposure to climate risk, encompassing physical, transition, and regulation risks, affects stock returns. Our main contribution is the insight that stocks with positive temperature co-variation earn lower future returns, acting as a hedge during periods of heightened investor marginal utility. Additionally, a positive change in a firm’s environmental score is associated with higher stock returns, while a higher level of environmental score corresponds to lower stock returns. To evaluate the contribution of climate change factors in the asset pricing model, we construct climate change factor-mimicking portfolios. Empirical results demonstrate that the model, comprising the temperature anomaly factor, climate news factor, and corporate environment factor, consistently outperforms the Fama–French 5-factor and q-factor models in capturing cross-sectional variations in average stock returns. In addition, this model performs better than the model presented by Görgen et al. (2020) and Ume (2021), which incorporate only the carbon risk factor. This underscores the importance of considering multiple facets of climate change in assessing its impact on asset pricing. As a result of this, study, relying solely on one aspect of climate change, may lead to an understatement of its overall effect on financial markets. Implications of this study suggest that considering a multi-faceted approach to climate risk in asset pricing models can lead to more accurate valuation and risk management strategies in financial markets.

Abstract Image

金融与气候变化:评估实际风险、过渡风险和监管风险对资产定价估值的影响
本研究探讨了气候风险(包括物理风险、过渡风险和监管风险)如何影响股票回报。我们的主要贡献在于洞察到温度共变性为正的股票未来收益较低,在投资者边际效用增加期间起到对冲作用。此外,公司环境得分的正向变化与较高的股票回报率相关,而较高的环境得分水平则对应较低的股票回报率。为了评估气候变化因素在资产定价模型中的贡献,我们构建了气候变化因素模拟投资组合。实证结果表明,由气温异常因子、气候新闻因子和企业环境因子组成的模型在捕捉平均股票回报率的横截面变化方面始终优于法玛-法式五因子模型和 q 因子模型。此外,该模型的表现优于 Görgen 等人(2020 年)和 Ume(2021 年)提出的模型,后者只包含碳风险因子。这突出表明,在评估气候变化对资产定价的影响时,必须考虑气候变化的多个方面。因此,仅从气候变化的一个方面进行研究,可能会低估气候变化对金融市场的整体影响。这项研究的启示是,在资产定价模型中考虑气候风险的多面性,可以为金融市场带来更准确的估值和风险管理策略。
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来源期刊
Journal of Asset Management
Journal of Asset Management BUSINESS, FINANCE-
CiteScore
4.10
自引率
0.00%
发文量
44
期刊介绍: The Journal of Asset Management covers:new investment strategies, methodologies and techniquesnew products and trading developmentsimportant regulatory and legal developmentsemerging trends in asset managementUnder the guidance of its expert Editors and an eminent international Editorial Board, Journal of Asset Management has developed to provide an international forum for latest thinking, techniques and developments for the Fund Management Industry, from high-growth investment strategies to modelling and managing risk, from active management to index tracking. The Journal has established itself as a key bridge between applied academic research, commercial best practice and regulatory interests, globally.Each issue of Journal of Asset Management publishes detailed, authoritative briefings, analysis, research and reviews by leading experts in the field, to keep subscribers up to date with the latest developments and thinking in asset management.Journal of Asset Management covers:asset allocation hedge fund strategies risk definition and management index tracking performance measurement stock selection investment methodologies and techniques portfolio management and weighting product development and innovation active asset management style analysis strategies to match client profiles time horizons emerging markets alternative investments derivatives and hedging instruments pensions economics
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