Atilgan et al (2023)

Atilgan, Yigit, K. Ozgur Demirtas, Alex Edmans, and A. Doruk Gunaydin. “Does the Carbon Premium Reflect Risk or Mispricing?” Working paper (Sabanci University), October 2023.

From the author’s abstract: “Prior research has documented a carbon premium in realized returns…. We find that the carbon premium partially represents unexpected returns and thus mispricing. Companies with higher scope 1, scope 2, or scope 3 emissions enjoy superior earnings surprises and earnings announcement returns; quarterly earnings announcements account for 30-50% of the premium. We find similar results for changes in emissions but not scaled emissions, consistent with earlier findings on realized returns. Our results suggest that the carbon premium, where it exists, partially results from an unpriced externality, highlighting the need for government action.”

[Sample period is 2002-2021, Trucost carbon data. -lk]

Link: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4573622