Blind to Carbon Risk? An Analysis of Stock Market’s Reaction to the Paris Agreement

Irene Monasterolo, Luca De Angelis

2019 | Academic | Carbon, Risk & Performance

We test if financial markets are pricing the Paris Agreement (PA) by decreasing (increasing) the systematic risk and increasing (decreasing) the portfolio weights of low-carbon (carbon-intensive) indices afterwards. We find that after the PA the correlation among low-carbon and carbon-intensive indices drops. The overall systematic risk for the low-carbon indices decreases consistently, while stock markets’ reaction is mild for most of carbon-intensive indices.