Carbon Risk and Expected Return

Abstract

This thesis examines whether climate risk and carbon emissions can be identified as separate risk factors in European listed equities. We build and extend on the methods of Bolton and Kacperczyk, by applying those methods on a broad European dataset. We apply one- and multi-factors frameworks such as the CAPM and Fama-French 3- and 5-factor models and find indications that there is a carbon premium in the period following the Paris Agreement for European listed equities.