Beschreibung:
This study offers novel evidence on the long-debated idiosyncratic volatility (IdVol) puzzle from a climate risk perspective. Using a set of U.S. listed firms that disclose carbon emissions from July 2010 to December 2019, our robust portfolio- and stock-level results show that the IdVol puzzle exists predominantly in high-carbon-intensive firms. We further document that the negative IdVol premium in cross-sectional returns is more pronounced in those firms that operate in high-carbon-intensive industries even in the absence of a carbon premium attached to firms’ carbon emissions intensity. Our findings also reveal that firm-level carbon emissions intensity explains 19.57% of the IdVol puzzle in cross-sectional returns of high-carbon-intensive firms. Hence, our results substantiate the necessity of taking carbon risk into account as a critical factor in making portfolio diversification decisions