BUSI701 ANNOTATED BIBLIOGRAPHY ASSIGNMENT: FINANCE 1
Annotated Bibliography Assignment: Finance
April Woodard
School of Behavioral Sciences, Liberty University
BUSI-701
References
Bolton, P., & Kacperczyk, M. (2023). Global Pricing of Carbon-Transition Risk. The Journal of
Finance., 78(6), 3677-3754. https://doi.org/10.1111/jofi.13272
In this article, Bolton & Kacperczyk (2023) determined that financial markets worldwide
demand carbon premiums, which require higher stock returns for companies with
higher carbon emissions. Their findings were based on the climate agreement reached
in
December 2015. This research included 500 of the world's largest companies in 2017.
BUSI701 ANNOTATED BIBLIOGRAPHY ASSIGNMENT: FINANCE 2
These companies generated approximately $30 trillion in revenues, which represented
37.5% of world GDP. The study was also based on the size of global carbon-transition
risk premiums, as measured by relating lagged firm-level emissions to individual stock
returns. Based on the study's factors, Bolton & Kacperczyk (2023) found that the
carbon premium is associated with the level of emissions and the year-to-year growth
in emissions. It was also determined that transition risk is primarily influenced by
countryspecific economic and political factors and is amplified by increased investor
awareness of climate change.
David Ardia,Keven Bluteau,Kris Boudt,Koen Inghelbrecht(2022). Climate Change Concerns and
the Performance of Green vs. Brown Stocks. Management Science 69(12):7607-
7632. https://doi.org/10.1287/mnsc.2022.4636
The authors of this study tested the predictions of other research on green and brown stocks
in the context of unexpected climate change. Based on their analysis, they found that
when there was a surprising increase in climate change concerns, the stock prices of
green firms increased, and brown the stock prices of brown firms decreased. It was also
discovered that the effect raises concerns for transition and physical climate change
risks. Furthermore, the study revealed an unexpected increase in climate change
concerns associated with increases in the discount rates of brown and green firms.
Hsu, P., LI, K., & Tsou, C. (2023). The Pollution Premium. The Journal of Finance., 78(3),
1343–1392. https://doi.org/10.1111/jofi.13217
The authors of this publication demonstrate that higher-emission firms within their specific
industry tend to exhibit higher returns on earnings. Their research was based on
models of cash flows that exposed the risk of shifts in environmental policy changes.
These changes prompted investors to demand higher returns on the stock of these
companies due to their sensitivity to sudden, unexpected policy changes. The authors
BUSI701 ANNOTATED BIBLIOGRAPHY ASSIGNMENT: FINANCE 3
developed an asset pricing model to link the relationship between uncertain
environmental policies and stock returns. Specifically, they compared their conclusions
to the 2016 presidential election, which was favorable to brown firms, leading to an
increase in stock prices.
Pástor, Ľ., Stambaugh, R. F., & Taylor, L. A. (2021). Sustainable investing in equilibrium.
Journal of Financial Economics., 142(2), 550–571.
https://doi.org/10.1016/j.jfineco.2020.12.011
This study utilizes model asset prices using different investor preferences in areas of
environmental, social, and governance (ESG) regulations. According to its findings, in
market equilibrium, green firms have lower expected returns because various investors
withhold them based on climate risks. However, it was also determined that green
firms can outperform brown firms if there are positive influences regarding ESG.
Overall, this study helps explain sustainable investing and its compatibility with
investors' financial goals.
Zhang, S. (2025). Carbon Returns across the Globe. The Journal of Finance., 80(1), 615–645.
https://doi.org/10.1111/jofi.13402
The research conducted by Zhang recommended that global "carbon returns" turned
significantly negative in the United States and are insignificant worldwide due to data
release lags. This indicated that previous information regarding carbon emissions
reflected future sales instead of risk premiums. Furthermore, differing climate
concerns and policies have a global impact on returns. For instance, more developed
markets throughout the world exhibit lower carbon returns, and stricter climate
policies affect stock returns. In summary, this study was based on factors including data
lag reporting, negative U.S. returns, insignificance of worldwide carbon return
BUSI701 ANNOTATED BIBLIOGRAPHY ASSIGNMENT: FINANCE 4
information and risk premiums, and stringent climate policies. As a result, the findings
show that investors are beginning to focus on carbon transition risks.
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