Abstract

Purpose: This paper examines whether corporate carbon intensity is priced in the cross-section of stock returns using firm-level data from the Korean equity market. The analysis is motivated by growing investor attention to climate transition risks and by mixed empirical evidence on carbon risk pricing in the existing literature. Research design and methodology: We develop a Bayesian hierarchical asset-pricing framework that allows the pricing of carbon intensity to vary across industries while controlling for firm-specific characteristics, unobserved firm-level heterogeneity, and aggregate time effects. The hierarchical structure enables partial pooling across sectors and firms, while a heavy-tailed return specification accommodates the empirical distribution of stock returns. Results: The posterior distribution of the average carbon-intensity coefficient is positive but economically modest, with substantial uncertainty and a credible interval that includes zero, indicating limited evidence of a strong uniform carbon risk premium across firms. At the same time, posterior means of industry-specific carbon effects are predominantly positive, suggesting cross-sectoral variation in how carbon exposure is priced, albeit with considerable uncertainty at the individual industry level. Conclusions: Taken together, the results imply that carbon risk is not priced uniformly in the Korean stock market. Instead, carbon exposure is associated with a weak and heterogeneous return premium that operates through sector-dependent channels rather than as a pervasive market-wide effect. These findings underscore the importance of accounting for heterogeneity and uncertainty when assessing the financial implications of firms’ carbon intensity.