Carbon Returns Across the Globe

More carbon-intensive firms have been underperforming in the U.S. but not globally at the first glance, despite their higher carbon-transition risk. The brown-minus-green return spread, or carbon return, disperses significantly across countries. In particular, the carbon return varies with unexpected climate concern shocks and earnings shocks and thus is lower in the more climate-concerned developed countries. After controlling for in-sample shocks, I find the carbon return varies with country-level physical risk and climate policy tightness but not most other country characteristics, including carbon dependency. The inference differs from previous studies because I relate stock returns to lagged carbon measures.