What Do Financial Markets Reveal about Global Warming?
AbstractFinancial market information can provide an objective assessment of expected losses due to global warming. In a Merton-type asset pricing model, with asset prices affected by changes in investment opportunities caused by 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. Required returns are 0.11 percent higher due to global warming, implying a present value loss of 4.18 percent of wealth. These costs complement and exceed previous estimates of the cost of global warming.
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Bibliographic InfoPaper provided by Department of Economics, West Virginia University in its series Working Papers with number 09-04.
Length: 42 pages
Date of creation: 2009
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More information through EDIRC
Asset Pricing; Global Warming; Cost of Capital; Tracking Portfolios.;
Find related papers by JEL classification:
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-12-19 (All new papers)
- NEP-CFN-2009-12-19 (Corporate Finance)
- NEP-ENE-2009-12-19 (Energy Economics)
- NEP-ENV-2009-12-19 (Environmental Economics)
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