Abstract: I investigate whether biodiversity risks are priced in global stock markets by studying 21,248 publicly listed stocks across 117 countries from April 2016 to June 2023. I first build long-short portfolios of biodiversity-favorable, or “nature-positive” and unfavorable “nature-negative” stocks and uncover a positive “biodiversity alpha” in the US. However, it exists only before the Kunming Declaration in October 2021, and is reversed thereafter by turning negative. No significant “biodiversity alpha” exists outside the US. Next, I examine firm-level biodiversity risk exposures and show that they are positively associated with stock returns worldwide, especially after the Kunming Declaration. This “biodiversity beta” cannot be explained away by carbon emissions or other climate-related issues and environmental issues. Finally, this study shows that firms involved in biodiversity incidents experience higher monthly stock returns in the month of incident(s), particularly after the Kunming Declaration and notably in the US.

Abstract: We offer new evidence on how the application of environmental, social, and governance (ESG) criteria has affected international stock returns. We estimate the market-based equity greenium in a cross-section of 21,902 firms from 96 countries. We find reliable evidence that green stocks earned higher returns than brown stocks around the world. This outperformance is associated with lower stock returns of energy firms but not higher returns of technology stocks. Decomposing this outperformance further into five regions, including North America, Europe, Japan, Asia Pacific, and Emerging Markets, demonstrates that the equity greenium effect mostly occurs in North America and during the period before 2016. Most of the equity greenium performance cannot be explained by exposures to return factors prominent in the asset pricing literature.

Abstract: Trading pauses on individual stocks under the Limit Up-Limit Down (LULD) Plan are key volatility circuit breakers in the US market, designed to prevent future disastrous market events similar to the 2010 Flash Crash. However, unnecessary pauses could harm market quality. Since July 2016, the 10th Amendment to the LULD Plan (A10) has dramatically reduced superfluous trading pauses due to deceptive opening prices. Henceforth, the pre-pause liquidity improves, and there is less room for the post-pause liquidity to increase compared to the pre-pause level. Short-term volatility spikes around trading pauses after A10, and the post-pause volatility increases. Furthermore, it is crucial to understand the role that high-frequency traders play around trading pauses. Post A10, high-frequency quoting peaks closely around trading pauses, especially after trading resumptions. Suggestive evidence indicates that high-frequency quoting is related to improved liquidity around trading pauses, notably post A10 and before trading pauses, but not necessarily linked to increased short-term volatility.