Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/324844 
Year of Publication: 
2025
Series/Report no.: 
Staff Reports No. 1161
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
Are carbon emissions priced in equity markets? The literature is split with different approaches yielding conflicting results. We develop a stylized model showing that, if emissions are priced, stock returns depend on expected emissions and the product of the innovation in emissions and the price-dividend ratio. Building on this insight, we derive and test new predictions. We find that emissions are priced in equity markets, but the magnitude of such pricing is highly sensitive to the inclusion of a few "super emitters" (mostly operating in electric power generation). Our theoretical insight also helps reconcile seemingly divergent results in the literature.
Subjects: 
carbon emissions
stock returns
cost of capital
ESG
JEL: 
D62
G11
G12
Q54
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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