City Research Online

Abstract

Existing research emphasises that the driver of green investment is its future profitability. This paper shows that other investors' decisions also influence green investment. We take the example of scrubber installation in shipping, which is optional by regulation but has an established market for trading its underlying asset. It requires an initial capital expenditure but generates increased profitability due to fuel savings and higher freight income. However, the volatility of fuel prices and freight rates renders it challenging for investors to decide on the installation. To examine this dilemma, we develop and estimate a Vector Error Correction Model across the tanker and dry bulk shipping sectors from 2021 to 2024. The results indicate the existence of both short‐ and long‐run cointegrating relationships among the freight rate premium, fuel savings and the size of the scrubber‐fitted fleet. A 1% increase in the share of the scrubber‐fitted fleet decreases the freight rate premium by 1.4%–3.8% and fuel savings by 0.6%–1.9%. We are the first to provide empirical evidence regarding the peer effect of green investment on market price premia. When undertaking green investments, it is important to consider others' decisions as the potential oversupply of the asset can reduce its future profitability.

Publication Type:	Article
Additional Information:	© 2026 The Author(s). International Journal of Finance & Economics published by John Wiley & Sons Ltd. This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.
Publisher Keywords:	green investment, market price premia, peer effect, scrubbers, shipping
Subjects:	H Social Sciences > HG Finance
Departments:	Bayes Business School Bayes Business School > Faculty of Finance
SWORD Depositor:	Symplectic Administrator

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