The performance of Green and Brown stocks: Evidence from the Nordic stock market

Abstract

This thesis examines the performance of Green and Brown stocks in the Nordic stock market. Using the Pastor et al. (2022) methodology, I ranked the stocks based on their greenness utilizing the MSCI environmental data. The time period used in this study dates from October 2013 to November 2023. My results indicate a notable divergence between the US and Nordic stock markets, with an inverse relationship in the cumulative realized returns of Green and Brown portfolios. However, regressing the returns of Nordic Green and Brown portfolios against the Fama & French (1993, 2015) five-factors, revealed the loss of statistically significant alpha of the portfolio returns. Additionally, I investigated the finding of Pastor et al. (2022) about climate concerns as a predictive factor of Green-minus Brown portfolio returns. I used a comprehensive climate sentiment score dataset derived from opinions expressed on Twitter (Effrosynidis, 2022) as the climate concern factor. The result indicated no relationship between the Green and Brown portfolios, and the climate sentiments.