Common Shocks and Climate Risk in European Equities

• DOI: 10.1002/for.3256
• Publication Date: 2025-02-04T10:32:00Z
• Authors: Andrea Cipollini; Fabio Parla

ABSTRACT We examine the contribution of a shock to climate concern observed outperformance portfolio European green stocks relative brown benchmark. show, first, that an information set given by 1‐month stock return and realized volatility each constituent (and their cross‐sectional averages) improves (in‐sample) forecasting performance for series traditional market risk factors proxied Fama–French portfolios. Moreover, identification occurs in two stages: First, we compute historical decomposition based on Panel SVAR fitted constituent. Then, first common returns is purged macroeconomic forecast errors, residual interpreted as innovation concern. The empirical evidence robust number different selections entering portfolio.