Is Carbon Risk Priced in the Cross-Section of Corporate Bond Returns?

Office of Alumni and External Relations    2021-06-09

Subject: Is Carbon Risk Priced in the Cross-Section of Corporate Bond Returns?

Guest: Quan Wen, Assistant Professor, Georgetown University

Host: Zhang Ran, Assistant Professor, Antai

Time: Wednesday, Jun 9, 2021,  9:00-10:30

Venue: Tencent Conference (Please send email to by 17:00 Jun 8th for meeting number and password)


This paper examines the pricing of a firm's carbon risk, measured by its carbon emissions intensity, in the cross section of corporate bond returns. Contrary to the “carbon risk premium” hypothesis, we find bonds of firms with higher carbon emissions intensity earn significantly lower returns. This effect cannot be explained by a comprehensive list of bond characteristics and exposure to known risk factors. Investigating sources of the low carbon premium, we find the underperformance of bonds issued by carbon-intensive firms cannot be fully explained by divestment from institutional investors. Instead, our evidence is most consistent with investor underreaction to carbon risk, as carbon emissions intensity is predictive of lower future cash flow news, deteriorating firm creditworthiness, more environmental incidents, and elevated downside risks.


Quan Wen is an Assistant Professor of Finance at the McDonough School of Business at Georgetown University. He received his Ph.D. in finance from Emory University and his B.A. in economics and finance from Southwestern University of Finance and Economics (SWUFE). His primary research interests are empirical asset pricing, with a particular focus in understanding what drives asset returns; risk-return trade-off; institutional investors; frictions in financial markets and their implications for market efficiency.

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