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Non-standard errors in carbon premia

Author

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  • Beyer, Victor
  • Bauckloh, Michael Tobias

Abstract

This research investigates the influence of methodological choices in portfolio sorts on the size of the carbon premium. By analyzing more than 100,000 methodological paths, we find that variations in the construction of brown-minus-green portfolios create substantial non-standard errors. From 2009 to 2022, the mean carbon premium is -0.16% per month, with a non-standard error of 0.26%. Additionally, there is significant time-series variation in non-standard errors, which correlates with climate media attention. Controlling for unexpected changes in climate concerns substantially reduces methodology-induced uncertainty and helps explain the absence of a consistently positive carbon premium.

Suggested Citation

  • Beyer, Victor & Bauckloh, Michael Tobias, 2024. "Non-standard errors in carbon premia," CFR Working Papers 24-06, University of Cologne, Centre for Financial Research (CFR).
    • Handle: RePEc:zbw:cfrwps:300683
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    File URL: https://www.econstor.eu/bitstream/10419/300683/1/1897324464.pdf
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    References listed on IDEAS

    as
    1. Bauer, Michael & Huber, Daniel & Rudebusch, Glenn & Wilms, Ole, 2022. "Where is the carbon premium? Global performance of green and brown stocks," Other publications TiSEM 6b117156-316d-440a-9fa5-b, Tilburg University, School of Economics and Management.
    2. Pástor, Ľuboš & Stambaugh, Robert F. & Taylor, Lucian A., 2022. "Dissecting green returns," Journal of Financial Economics, Elsevier, vol. 146(2), pages 403-424.
    3. Shumway, Tyler, 1997. "The Delisting Bias in CRSP Data," Journal of Finance, American Finance Association, vol. 52(1), pages 327-340, March.
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    More about this item

    Keywords

    non-standard errors; portfolio sorts; carbon premium; methodological uncertainty;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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