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Dissecting Green Returns

Author

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  • Pástor, LuboÅ¡
  • Stambaugh, Robert F.
  • Taylor, Lucian
Abstract
Green assets delivered high returns in recent years. This performance reflects unexpectedly strong increases in environmental concerns, not high expected returns. German green bonds outperformed their higher-yielding non-green twins as the "greenium" widened, and U.S. green stocks outperformed brown as climate concerns strengthened. Despite that outperformance, we estimate lower expected returns for green stocks than for brown, consistent with theory. We estimate expected returns in two ways: ex ante, using implied costs of capital, and ex post, using realized returns purged of shocks from climate concerns and earnings. A theoretically motivated green factor explains much of value stocks' recent underperformance.

Suggested Citation

  • Pástor, LuboÅ¡ & Stambaugh, Robert F. & Taylor, Lucian, 2022. "Dissecting Green Returns," CEPR Discussion Papers 16260, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16260
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    More about this item

    Keywords

    Sustainable investing; ESG; Green factor; Greenium; Green bonds;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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