Summer ESG Module · Valuation · Reading List

Why Value Moves

The asset-pricing papers behind the theory — discount rates, the SDF, and where ESG enters — plus the method behind the SpaceX practice.
Readings are drawn from the leading economics and finance journals; foundational books are included where they are the original source. Core readings are the spine of the lecture; further readings deepen the predictability evidence and the valuation method. Tags: free open / working-paper version available · journal via the library · book.

Core readings
Start here

Eight sources: the discount-rate framework, the CAPM behind the WACC, and the four papers that price ESG.

  1. Cochrane, J. H. (2011). Presidential Address: Discount Rates. Journal of Finance 66(4). freeNBER w16972 · the spine — valuations move on discount rates, not growth
  2. Campbell, J. Y. & Shiller, R. J. (1988). The Dividend–Price Ratio and Expectations of Future Dividends and Discount Factors. Review of Financial Studies 1(3). freefind it · the identity — a high price must forecast returns or growth
  3. Sharpe, W. F. (1964). Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk. Journal of Finance 19(3). journalfind it · the CAPM behind the cost of equity and the WACC
  4. Pástor, Ľ., Stambaugh, R. F. & Taylor, L. A. (2021). Sustainable Investing in Equilibrium. Journal of Financial Economics 142(2). freeNBER w26549 · the taste channel — green earns a lower cost of capital
  5. Pástor, Ľ., Stambaugh, R. F. & Taylor, L. A. (2022). Dissecting Green Returns. Journal of Financial Economics 146(2). freeNBER w28940 · the greenium puzzle — high price now, low future return
  6. Bolton, P. & Kacperczyk, M. (2021). Do Investors Care About Carbon Risk? Journal of Financial Economics 142(2). freeNBER w26968 · the carbon premium — on the level of total emissions
  7. Pedersen, L. H., Fitzgibbons, S. & Pomorski, L. (2021). Responsible Investing: The ESG-Efficient Frontier. Journal of Financial Economics 142(2). freeSSRN · ESG as a signal and as a taste — the frontier
  8. Cochrane, J. H. (2005). Asset Pricing (revised ed.). Princeton University Press. bookthe stochastic-discount-factor framework, P = E[m·x], in full

Further readings
Go deeper

The evidence that discount rates move — and the valuation method behind the SpaceX practice.

  1. Shiller, R. J. (1981). Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends? American Economic Review 71(3). freefind it · excess volatility — where the puzzle begins
  2. Fama, E. F. & French, K. R. (1988). Dividend Yields and Expected Stock Returns. Journal of Financial Economics 22(1). freefind it · return predictability from the dividend yield
  3. Campbell, J. Y. & Cochrane, J. H. (1999). By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior. Journal of Political Economy 107(2). freefind it · why the price of risk is countercyclical
  4. Damodaran, A. (2017). Narrative and Numbers: The Value of Stories in Business. Columbia University Press. bookauthor's site · story vs numbers — the SpaceX lesson
  5. Damodaran, A. Investment Valuation (3rd ed.). Wiley. bookauthor's site · the DCF toolkit and sum-of-the-parts
Plain-text version (for the ELE reading list / Talis) 
CORE
Cochrane, J. H. (2011). Presidential Address: Discount Rates. Journal of Finance, 66(4), 1047-1108. [NBER w16972]
Campbell, J. Y. & Shiller, R. J. (1988). The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors. Review of Financial Studies, 1(3), 195-228.
Sharpe, W. F. (1964). Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk. Journal of Finance, 19(3), 425-442.
Pastor, L., Stambaugh, R. F. & Taylor, L. A. (2021). Sustainable Investing in Equilibrium. Journal of Financial Economics, 142(2), 550-571. [NBER w26549]
Pastor, L., Stambaugh, R. F. & Taylor, L. A. (2022). Dissecting Green Returns. Journal of Financial Economics, 146(2), 403-424. [NBER w28940]
Bolton, P. & Kacperczyk, M. (2021). Do Investors Care About Carbon Risk? Journal of Financial Economics, 142(2), 517-549. [NBER w26968]
Pedersen, L. H., Fitzgibbons, S. & Pomorski, L. (2021). Responsible Investing: The ESG-Efficient Frontier. Journal of Financial Economics, 142(2), 572-597. [SSRN 3466417]
Cochrane, J. H. (2005). Asset Pricing (revised ed.). Princeton University Press.

FURTHER
Shiller, R. J. (1981). Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends? American Economic Review, 71(3), 421-436.
Fama, E. F. & French, K. R. (1988). Dividend Yields and Expected Stock Returns. Journal of Financial Economics, 22(1), 3-25.
Campbell, J. Y. & Cochrane, J. H. (1999). By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior. Journal of Political Economy, 107(2), 205-251.
Damodaran, A. (2017). Narrative and Numbers: The Value of Stories in Business. Columbia University Press.
Damodaran, A. Investment Valuation (3rd ed.). Wiley.