Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/322041 
Year of Publication: 
2025
Series/Report no.: 
ECB Working Paper No. 3030
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
Does it pay to invest in green companies? In countries where a market for carbon is functioning, such as those within the European Union, our findings suggest that it should be beneficial. Using a sample of green and brown European firms, we initially demonstrate that green companies have outperformed brown ones in recent times. Subsequently, we develop a production economy model in which brown firms acquire permits to emit carbon into the atmosphere. We find that the presence of a well-functioning carbon market could account for the green equity premium observed in our data. Incorporating a preference for green financial assets is also unlikely to overturn our results.
Subjects: 
Asset Pricing
Composite Habits
Equity Premium
General Equilibrium
Monopolistic Competition
JEL: 
E32
Q51
G18
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-7117-1
Document Type: 
Working Paper

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