Review of Financial Studies Vol. 34 No. 8 2021

Climate Change and Long-Run Discount Rates: Evidence from Real Estate

Stefano Giglio¹; Matteo Maggiori²; K. H. Rao³; Johannes Stroebel⁴; Andreas Weber⁵

¹ Yale University, NBER, and CEPR · ² Stanford University, NBER, and CEPR · ³ Zillow · ⁴ Stern School of Business, New York University, NBER, and CEPR · ⁵ Stern School of Business, New York University

Abstract

We show that housing markets provide information about the appropriate discount rates for valuing investments in climate change abatement. Real estate is exposed to both consumption and climate risk and its term structure of discount rates is downward sloping, reaching 2.6% for payoffs beyond 100 years. We use a tractable asset pricing model that incorporates features of climate change to show that the term structure of discount rates for climate-hedging investments is thus upward sloping but bounded above by the risk-free rate. At horizons at which risk-free rates are unavailable, the estimated housing discount rates provide an upper bound.

DOI

10.1093/rfs/hhab032

Volume

34

Issue

8

Pages

3527-3571

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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