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Pricing Biodiversity Risk: The Role of Investor Attention Dynamics.

Asgharian, Hossein LU ; Meskinimood, Shayan LU ; Pourkhanali, Armin and Mirghaffari, Reza (2026)
Abstract
This paper examines whether biodiversity and climate risks are reflected in equity returns and how investor attention affects the pricing dynamics. Using firm-level indicators of biodiversity impact, dependency, and climate transition and physical risks, we form long-short portfolios based on firms’ environmental exposure. We find that low-risk firms earn higher abnormal returns than high-risk firms. Our analysis of the effect of attention on return shows both an immediate market response to unexpected changes in attention and a more persistent co-movement between attention and portfolio performance, in which changes in attention correspond to larger adjustments in returns than feedback effects in the opposite direction. These results... (More)
This paper examines whether biodiversity and climate risks are reflected in equity returns and how investor attention affects the pricing dynamics. Using firm-level indicators of biodiversity impact, dependency, and climate transition and physical risks, we form long-short portfolios based on firms’ environmental exposure. We find that low-risk firms earn higher abnormal returns than high-risk firms. Our analysis of the effect of attention on return shows both an immediate market response to unexpected changes in attention and a more persistent co-movement between attention and portfolio performance, in which changes in attention correspond to larger adjustments in returns than feedback effects in the opposite direction. These results suggest that the higher realized returns of firms with lower environmental risk, which are not consistent with standard risk-compensation predictions, may reflect gradual price adjustments associated with shifts in investor attention and corresponding changes in asset demand. (Less)
Please use this url to cite or link to this publication:
author
; ; and
organization
publishing date
type
Working paper/Preprint
publication status
published
subject
keywords
Biodiversity footprint, Biodiversity dependency,, Investor attention, Cointegration, Climate risk, Hedge portfolios, G11, G12, G30, Q57
pages
45 pages
publisher
SSRN
project
Knut Wicksell Centre for Financial Studies
language
English
LU publication?
yes
id
c29c786d-de26-4673-9233-64c025650a9c
alternative location
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6601438
date added to LUP
2026-06-02 10:39:22
date last changed
2026-06-02 15:37:01
@misc{c29c786d-de26-4673-9233-64c025650a9c,
  abstract     = {{This paper examines whether biodiversity and climate risks are reflected in equity returns and how investor attention affects the pricing dynamics. Using firm-level indicators of biodiversity impact, dependency, and climate transition and physical risks, we form long-short portfolios based on firms’ environmental exposure. We find that low-risk firms earn higher abnormal returns than high-risk firms. Our analysis of the effect of attention on return shows both an immediate market response to unexpected changes in attention and a more persistent co-movement between attention and portfolio performance, in which changes in attention correspond to larger adjustments in returns than feedback effects in the opposite direction. These results suggest that the higher realized returns of firms with lower environmental risk, which are not consistent with standard risk-compensation predictions, may reflect gradual price adjustments associated with shifts in investor attention and corresponding changes in asset demand.}},
  author       = {{Asgharian, Hossein and Meskinimood, Shayan and Pourkhanali, Armin and Mirghaffari, Reza}},
  keywords     = {{Biodiversity footprint; Biodiversity dependency,; Investor attention; Cointegration; Climate risk; Hedge portfolios; G11; G12; G30; Q57}},
  language     = {{eng}},
  month        = {{04}},
  note         = {{Preprint}},
  publisher    = {{SSRN}},
  title        = {{Pricing Biodiversity Risk: The Role of Investor Attention Dynamics.}},
  url          = {{https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6601438}},
  year         = {{2026}},
}