Abstract
Our study offers intriguing evidence on the much-debated idiosyncratic volatility (IdVol) puzzle from a climate risk perspective. Using a set of US-listed stocks from July 2010 to December 2019, our robust portfolio- and stock-level results reveal that the IdVol puzzle exists in both carbon-footprint-disclosing and non-disclosing stocks. Furthermore, investors do not perceive a significant difference in the IdVol puzzle between carbon-footprint-disclosing and non-disclosing stocks. However, the IdVol puzzle is concentrated in high-carbon-intensive stocks as far as those carbon-footprint-disclosing stocks are concerned, implying the combined effect of investor attention and ethical screening of stocks. Overall, our results substantiate the specific impact of climate-related risks on asset pricing decisions.