IS THERE EVIDENCE OF A CARBON PREMIUM IN THE STOCK MARKETS OF EMERGING ECONOMIES?

Abstract

This thesis aims to determine the existence of carbon premium in the stock markets of emerging economies that have different financial and regulatory systems than the developed markets. The current study employs portfolio sorting and panel regression analyses to examine the linkage between stock returns and carbon emissions with the help of absolute levels and intensity of emissions. The findings of this study reveal that intensity of emissions as a size matched variable is a better explanatory factor of returns than the levels of emissions. While brown portfolios generally outperform green portfolios, the carbon premium varies across countries, being significant in some (e.g., Brazil) and absent in others. These findings offer insights for sustainable investment strategies and policymaking in emerging markets.