Warm-Glow Investment and the Under-Performance of Green Stocks

Johannes Kabderian Dreyer*, Vivek Sharma, William T. Smith

*Corresponding author

Research output: Contribution to conferencePaperResearchpeer-review


In this paper we develop a novel theory to explain why green stocks should underperform relative to conventional stocks. We assume that investors derive utility from the act of investing in green stocks – what we call “warm-glow” investment. We derive the theoretical implications of these preferences in a model that is an extension of the CCAPM. We estimate the model using the Generalized Method of Moments. Our estimates of the strength of the preference for warm-glow are statistically significant, but economically insignificant before the financial crisis. After the crisis they are both statistically and economically significant.
Original languageEnglish
Publication date2020
Publication statusPublished - 2020
EventFinancial Management Association Virtual Conference 2020
Duration: 19 Oct 202023 Oct 2020


ConferenceFinancial Management Association Virtual Conference 2020
Internet address


  • Warm-glow
  • ESG
  • Green Preferences
  • Asset-Pricing
  • Asset Smoothing Effect
  • Green Stocks

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