Dissecting Green Returns

Dissecting Green Returns

Dissecting Green Returns, Green assets delivered high returns in recent years. This performance reflects unexpectedly strong increases in environmental concerns, not high expected returns. German green bonds outperformed their higher-yielding non-green twins as the “greenium” widened, and U.S. green stocks outperformed brown as climate concerns strengthened. Despite that outperformance, we estimate lower expected returns for green stocks than for brown, consistent with theory. We estimate expected returns in two ways: ex ante, using implied costs of capital, and ex post, using realized returns purged of shocks from climate concerns and earnings. A theoretically motivated green factor explains much of value stocks’ recent underperformance.


Lubos Pastor
University of Chicago – Booth School of Business

Robert F. Stambaugh
University of Pennsylvania – The Wharton School; National Bureau of Economic Research (NBER)

Lucian A. Taylor
University of Pennsylvania – The Wharton School

Date Written: June 10, 2022

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