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Assessing the volatility of green firms

Author

Listed:
  • Chollete, Lorán
  • Hughen, Keener
  • Lu, Ching-Chih
  • Peng, Weijia

Abstract

Environmentally responsible (‘green’) firms have important asset pricing implications. Whilst green firms’ performance has been formally studied in terms of returns and pricing (Bolton and Kacperczyk, 2022; Pástor et al., 2022), far less is known about their volatility. We analyze the volatility of green and brown firms from 2012 to 2021, through the multiple lens of GARCH, machine learning, and historical volatility. The unconditional volatilities of brown and green firms are similar. The forecasting of volatility, however, differs sharply between green and brown firms: it is much harder to forecast green firms’ volatility.

Suggested Citation

  • Chollete, Lorán & Hughen, Keener & Lu, Ching-Chih & Peng, Weijia, 2024. "Assessing the volatility of green firms," Finance Research Letters, Elsevier, vol. 64(C).
    • Handle: RePEc:eee:finlet:v:64:y:2024:i:c:s1544612324004021
    DOI: 10.1016/j.frl.2024.105372
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    Keywords

    Green firms; Machine learning; Forecasting; Volatility;
    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
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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