IDEAS home Printed from https://ideas.repec.org/a/sae/enejou/v43y2022i1p139-160.html
   My bibliography  Save this article

On Bond Returns in a Time of Climate Change

Author

Listed:
  • Alessandro Ravina

Abstract

The study of the financial repercussions of low-carbon policy has focused mainly on stocks, leaving bonds out of the picture. The objective of this paper is to assess the impact of low-carbon policy upon European bond returns. This is done by extending the Fama and French two factor model for bonds with an EU-ETS participation factor: GMC (Green minus Carbon). This paper makes four contributions. Firstly, it provides a statistically highly significant measure of the sensitivity of bond portfolio returns to the GMC factor. Secondly, it shows the presence of a green premium in the European bond market in between 2008 and 2018. Thirdly, evidence is found that the addition of an environmental factor improves the performance of the original model. Fourthly, the carbon stress test put forward is able to indicate the effects of a plausible but more severe average EU-ETS carbon price on bond returns.

Suggested Citation

  • Alessandro Ravina, 2022. "On Bond Returns in a Time of Climate Change," The Energy Journal, , vol. 43(1), pages 139-160, January.
    • Handle: RePEc:sae:enejou:v:43:y:2022:i:1:p:139-160
    DOI: 10.5547/01956574.43.1.arav
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.5547/01956574.43.1.arav
    Download Restriction: no
    File URL: https://libkey.io/10.5547/01956574.43.1.arav?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Gernot Wagner & Martin L. Weitzman, 2016. "Climate Shock: The Economic Consequences of a Hotter Planet," Economics Books, Princeton University Press, edition 2, number 10725.
    2. Melissa Dell & Benjamin F. Jones & Benjamin A. Olken, 2014. "What Do We Learn from the Weather? The New Climate-Economy Literature," Journal of Economic Literature, American Economic Association, vol. 52(3), pages 740-798, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Peter H. Howard & Thomas Sterner, 2017. "Few and Not So Far Between: A Meta-analysis of Climate Damage Estimates," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(1), pages 197-225, September.
    2. Mark C. Freeman & Ben Groom & Richard Zeckhauser, 2015. "Better Predictions, Better Allocations: Scientific Advances and Adaptation to Climate Change," NBER Working Papers 21463, National Bureau of Economic Research, Inc.
    3. Rising, James A. & Taylor, Charlotte & Ives, Matthew C. & Ward, Robert E.t., 2022. "Challenges and innovations in the economic evaluation of the risks of climate change," LSE Research Online Documents on Economics 114941, London School of Economics and Political Science, LSE Library.
    4. Ferreira, Susana, 2024. "Extreme Weather Events and Climate Change: Economic Impacts and Adaptation Policies," IZA Discussion Papers 16715, Institute of Labor Economics (IZA).
    5. Joaquín Bernal-Ramírez & Jair Ojeda-Joya & Camila Agudelo-Rivera & Felipe Clavijo-Ramírez & Carolina Durana-Ángel & Clark Granger-Castaño & Daniel Osorio-Rodríguez & Daniel Parra-Amado & José Pulido &, 2022. "Impacto macroeconómico del cambio climático en Colombia," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, issue 102, pages 1-62, July.
    6. Cécile Couharde & Rémi Generoso, 2015. "Hydro-climatic thresholds and economic growth reversals in developing countries: an empirical investigation," EconomiX Working Papers 2015-26, University of Paris Nanterre, EconomiX.
    7. Awaworyi Churchill, Sefa & Smyth, Russell & Trinh, Trong-Anh, 2022. "Energy poverty, temperature and climate change," Energy Economics, Elsevier, vol. 114(C).
    8. Wenju Cai & Yi Liu & Xiaopei Lin & Ziguang Li & Ying Zhang & David Newth, 2024. "Nonlinear country-heterogenous impact of the Indian Ocean Dipole on global economies," Nature Communications, Nature, vol. 15(1), pages 1-10, December.
    9. Freeman, Mark C. & Wagner, Gernot & Zeckhauser, Richard J., 2015. "Climate Sensitivity Uncertainty: When Is Good News Bad?," Working Paper Series rwp15-002, Harvard University, John F. Kennedy School of Government.
    10. Xi Chen & Chih Ming Tan & Xiaobo Zhang & Xin Zhang, 2020. "The effects of prenatal exposure to temperature extremes on birth outcomes: the case of China," Journal of Population Economics, Springer;European Society for Population Economics, vol. 33(4), pages 1263-1302, October.
    11. Mehmet Balcilar & Elie Bouri & Rangan Gupta & Christian Pierdzioch, 2021. "El Niño, La Niña, and the Forecastability of the Realized Variance of Heating Oil Price Movements," Sustainability, MDPI, vol. 13(14), pages 1-23, July.
    12. Hsing-Hsiang Huang & Michael R. Moore, 2018. "Farming under Weather Risk: Adaptation, Moral Hazard, and Selection on Moral Hazard," NBER Chapters, in: Agricultural Productivity and Producer Behavior, pages 77-124, National Bureau of Economic Research, Inc.
    13. Austin L. Wright, 2016. "Economic Shocks and Rebel," HiCN Working Papers 232, Households in Conflict Network.
    14. Spies-Butcher, Ben & Bryant, Gareth, 2024. "The history and future of the tax state: Possibilities for a new fiscal politics beyond neoliberalism," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 98(C).
    15. Zhang, Shaohui & Guo, Qinxin & Smyth, Russell & Yao, Yao, 2022. "Extreme temperatures and residential electricity consumption: Evidence from Chinese households," Energy Economics, Elsevier, vol. 107(C).
    16. Patrycja Klusak & Matthew Agarwala & Matt Burke & Moritz Kraemer & Kamiar Mohaddes, 2023. "Rising Temperatures, Falling Ratings: The Effect of Climate Change on Sovereign Creditworthiness," Management Science, INFORMS, vol. 69(12), pages 7468-7491, December.
    17. Andrea Bastianin & Alessandro Lanza & Matteo Manera, 2018. "Economic impacts of El Niño southern oscillation: evidence from the Colombian coffee market," Agricultural Economics, International Association of Agricultural Economists, vol. 49(5), pages 623-633, September.
    18. Lane, Philip R., 2019. "Climate Change and the Irish Financial System," Economic Letters 1/EL/19, Central Bank of Ireland.
    19. Checo, Ariadne & Mejía, Mariam & Ramírez, Francisco A., 2017. "El rol de los regímenes de precipitaciones sobre la dinámica de precios y actividad del sector agropecuario de la República Dominicana durante el período 2000-2016 [The role of rainfall regimes on ," MPRA Paper 80301, University Library of Munich, Germany.
    20. Joshua Graff Zivin & Solomon M. Hsiang & Matthew Neidell, 2018. "Temperature and Human Capital in the Short and Long Run," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 5(1), pages 77-105.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:enejou:v:43:y:2022:i:1:p:139-160. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.