Market reactions to the 2019 novel coronavirus disease (COVID-19) provide new insights into how real shocks and financial policies drive firm value. Initially, internationally oriented firms, especially those more exposed to trade with China, underperformed. As the virus spread to Europe and the United States, corporate debt and cash holdings emerged as important value drivers, relevant even after the Fed intervened in the bond market. The content and tone of conference calls mirror this development over time. Overall, the results illustrate how anticipated real effects from the health crisis, a rare disaster, were amplified through financial channels. (JEL G01, G12, G14, G32, F14) Received: May 27, 2020; editorial decision June 16, 2020 by Editor Andrew Ellul.

Climate change poses new challenges for portfolio management. In our not-yet-low carbon world, investors face a trade-off between minimizing their exposure to climate risks and maximizing the benefits of portfolio diversification. This article investigates how investors and financial intermediaries navigate this trade-off. After the release of Morningstar’s novel carbon risk metrics in April 2018, mutual funds labeled as “low carbon” experienced a significant increase in investor demand, especially those with high risk-adjusted returns. Fund managers actively reduced their exposure to firms with high carbon risk scores, especially stocks with returns that correlated more with the funds’ portfolios and were thus less useful for diversification. These findings shed light on whether and how climate-related information can re-orient capital flows in a low carbon direction.

Donald Trump’s 2016 election and his nomination of climate skeptic Scott Pruitt to head the Environmental Protection Agency drastically downshifted expectations about U.S. policy toward climate change. Joseph Biden’s 2020 election shifted them dramatically upward. We study firms’ stock-price movements in reaction to these changes. As expected, the 2016 election boosted carbon-intensive firms. Surprisingly, firms with climate-responsible strategies also gained, especially those firms held by long-run investors. Such investors appear to have bet on a “boomerang” in climate policy. Harbingers of a boomerang appeared during Trump’s term. The 2020 election marked its arrival.

The first Global Climate Strike on March 15, 2019, represented a historical turning point in climate activism. We investigate the cross-section of stock price reactions to this event for a large sample of European firms. The strike's unanticipated success caused a decrease in the stock prices of carbon-intensive firms. The effect appears to be driven by the increased public attention to climate activism. Furthermore, after the first Global Climate Strike financial analysts downgraded their longer-term earnings forecasts on carbon-intensive firms.

A fundamental concern about green investing is that it may crowd out political support for public policies addressing negative externalities. We examine this concern in a preregistered experiment conducted shortly before a real referendum on a climate law in Switzerland. We find that offering an opportunity to invest in a climate-friendly fund does not reduce individual support for climate regulation, measured by political donations and voting intentions. A replication of the experiment in the United Kingdom yields similar results. Our estimates reject a crowding-out effect, suggesting instead a modest crowding-in effect of green investing on political support for green policies.