Understanding Commodity Risk Factors In The Transition Towards A Net-Zero Carbon Economy
1 : Neoma Business School
Neoma Business School, Neoma Business School
2 : University of Essex
This paper provides novel evidence of a risk premia in the cross-section of commodity returns arising from the green transition. Extending the standard three factor model for commodity returns to include climate risk, we show how commodity returns have started to incorporate a risk premium to compensate for this risk since the 2015 Paris Agreement. We estimate the risk premia associated with both risk factors to be both statistically and economically significant, controlling for known risk factors.