Unraveling the Link between Environmental Metrics and Stock Returns: An In-Depth Analysis of Climate Risk Premiums and Climate News Hedge Portfolios
Master thesis
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https://hdl.handle.net/11250/3097740Utgivelsesdato
2023Metadata
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- Master of Science [1618]
Sammendrag
This thesis examines a broad range of E(SG) scores and real environmental metrics’
cross-sectional and time-series effect on excess stock return, in the European
market from December 2010 to December 2022. The objective is to analyze how
E(SG) scores and environmental metrics differ in their ability to capture climate
risk exposure. Through Fama MacBeth regressions and characteristics-based portfolio
sorting, the study reveals a compelling insight; adopting an investment strategy
that goes long environmental underperforming firms (i.e. ”brown”) and short
overperforming firms (”green”) results in statistically significant risk premiums
ranging from -7.83% to 5.22% annually. Furthermore, our analysis reveals a weak
relationship between environmental metrics and E(SG) scores, extending existing
research on ESG disagreement. Finally, using a mimicking portfolio approach we
show that our sample of environmental variables proves insufficient in hedging
innovations in climate change news.
Beskrivelse
Masteroppgave(MSc) in Master of Science in Business, Finance - Handelshøyskolen BI, 2023