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Do climate risks matter for green investment?

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  • Marshall, Ben R.
  • Nguyen, Hung T.
  • Nguyen, Nhut H.
  • Visaltanachoti, Nuttawat
  • Young, Martin

Abstract

We consider the degree to which climate disasters influence investor behavior. Using data on events such as hurricanes and floods, we show that disasters prompt investors to pay more attention to socially responsible investing and invest more in mutual funds with an environmental focus. Consistent with a salience explanation, this effect is more pronounced for disasters that attract the most attention. The funds receiving the increased inflows do not have higher risk-adjusted returns before climate disasters, so there is no evidence to support a return-chasing explanation. Moreover, investors do not gain excess returns from their climate disaster-induced investment decisions.

Suggested Citation

  • Marshall, Ben R. & Nguyen, Hung T. & Nguyen, Nhut H. & Visaltanachoti, Nuttawat & Young, Martin, 2021. "Do climate risks matter for green investment?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    • Handle: RePEc:eee:intfin:v:75:y:2021:i:c:s1042443121001505
    DOI: 10.1016/j.intfin.2021.101438
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    References listed on IDEAS

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    3. Alt, Marius & Berger, Marius & Bersch, Johannes, 2023. "Investor responses to information updates on peer behavior and public investment policy: The case of green investments," ZEW Discussion Papers 23-024, ZEW - Leibniz Centre for European Economic Research.
    4. Cheng, Ruijie & Gupta, Bhavya & Rajan, Ramkishen S., 2023. "Do green financial policies offset the climate transition risk penalty imposed on long-term sovereign bond yields?," Research in International Business and Finance, Elsevier, vol. 65(C).

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    More about this item

    Keywords

    Climate Disasters; Socially Responsible Investing; Mutual Funds;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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