Quantitative Sustainable Economics and Finance 
Time: 11.30 am
Date: 27th of March 2025
Room 3001

Hélène Mathurin Lung (ESSEC) “Pricing of green regulatory and technological risks”

Abstract :I use text analysis of U.S. firms’ press releases to build monthly measures of their exposure to environmental policies and to green technologies. I estimate the associated regulatory risk premium and technological opportunity premium. The time series of these premia reveal two findings. First, they exhibit a significant negative correlation. Second, their sign and magnitude depend on the political orientation of the government. Under Democrat administrations, green policy risk commands a positive premium, which switches sign under Republican presidents. Firms the most exposed to this risk have expected returns 1.5% higher under Democrats than under Republicans. Similarly, green innovation is associated with a negative risk premium under Democrat mandates, which becomes positive under Republicans. The most innovative firms have expected returns 3.5% lower under Democrats than under Republicans. I introduce a tractable consumption-based asset pricing model, which features both policy and innovation risks as well as their interactions. The model captures well my empirical
findings and explains the impact of governments and policy makers on transition risk premia.

Organizers:  Patricia Crifo, Emmanuel Gobet, Peter Tankov, Gauthier Vermandel, and Olivier David Zerbib

Sponsors:
CREST-CMAP