VoxEU Column
by Galina Hale and Bhavyaa Sharma
Climate-related risks, both those related to the warming of the planet and those related to our actions to mitigate it, are a factor in asset pricing. This column argues that the nature of these risks is quite different from that of other shocks commonly considered in asset pricing models. Specifically, these shocks come from distributions that are not necessarily known and shift over time. Understanding the pricing of climate risks necessarily involves discussing how beliefs about the nature of these risks are formed.