Carbon emission risk and cross-asset pricing in commodity markets

Economics Letters 2026 Open access

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Authors: Mingfa Ding, Ai Jun Hou, Sandy Suardi, Caihong Xu
DOI: 10.1016/j.econlet.2026.112854
Cited by: 2
References: 18

Abstract

This paper examines whether carbon emission risk, widely documented in equity markets, is also priced in Chinese commodity markets. Using firm-level emission data and commodity futures from 2016–2021, we construct an equity-based high-minus-low (HML) carbon factor. The HML factor earns a significant monthly premium of 0.7% in the cross-section of commodity returns, while traditional commodity and macroeconomic factors show limited explanatory power. The results provide the first evidence of within-economy cross-asset transmission of carbon risk, underscoring the rising role of environmental risk in commodity pricing.

Fields of Study & Subjects

Market Dynamics and Volatility Financial Markets and Investment Strategies Climate Change Policy and Economics

Publication details

Journal / source
Economics Letters
Publisher
Elsevier BV
Volume
261
Pages
112854–112854
Publication date
2 February 2026
Language
EN