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The Adverse Impact of Gradual Temperature Change on Capital Investment

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  • Balvers, Ronald
  • Du, Ding
  • Zhao, Xiaobing

Abstract

Financial market information can provide an objective assessment of losses anticipated from global warming. In a Merton-type asset pricing model, with asset prices affected by perceived changes in investment opportunities due to global warming, the risk premium is significantly negative and growing over time, loadings for most assets are negative, and asset portfolios in more vulnerable industries have stronger negative loadings on the global warming factor. Average increases in required returns attributed to global warming are 0.11 percent, implying a present value loss of 4.18 percent of wealth. These costs complement previous estimates of the cost of global warming.

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Bibliographic Info

Paper provided by Agricultural and Applied Economics Association in its series 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington with number 124676.

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Date of creation: 2012
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Handle: RePEc:ags:aaea12:124676

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Keywords: Asset Pricing; Global Warming; Cost of Capital; Tracking Portfolios; Environmental Economics and Policy; G12; Q54;

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