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Green portfolios

Fischer, Thomas LU and Lundtofte, Frederik LU (2021) p.1-65
Abstract
We develop a long-horizon asset pricing model in which equity investments may damage future production/consumption possibilities through their climate impact. We derive a four-fund separation result and determine the stocks' equilibrium returns. Stocks that have a sufficiently adverse impact on the climate may appear to have positive alphas relative to the CAPM. We further link our equilibrium returns to the social cost of carbon. A calibration shows that while the effect of carbon emissions on equilibrium risk premiums is small, the optimal portfolios of short-selling constrained, climate conscious investors are more concentrated than those of other investors.
Please use this url to cite or link to this publication:
author
and
organization
publishing date
type
Working paper/Preprint
publication status
published
subject
keywords
green investments, climate change, portfolio selection, asset pricing, G11, G12, Q51, Q54
pages
1 - 65
publisher
SSRN
DOI
10.2139/ssrn.3923578
language
English
LU publication?
yes
id
85cad060-a9c4-4d23-9124-003513ef59aa
date added to LUP
2025-02-28 15:54:15
date last changed
2025-04-04 15:02:20
@misc{85cad060-a9c4-4d23-9124-003513ef59aa,
  abstract     = {{We develop a long-horizon asset pricing model in which equity investments may damage future production/consumption possibilities through their climate impact. We derive a four-fund separation result and determine the stocks' equilibrium returns. Stocks that have a sufficiently adverse impact on the climate may appear to have positive alphas relative to the CAPM. We further link our equilibrium returns to the social cost of carbon. A calibration shows that while the effect of carbon emissions on equilibrium risk premiums is small, the optimal portfolios of short-selling constrained, climate conscious investors are more concentrated than those of other investors.}},
  author       = {{Fischer, Thomas and Lundtofte, Frederik}},
  keywords     = {{green investments; climate change; portfolio selection; asset pricing; G11; G12; Q51; Q54}},
  language     = {{eng}},
  note         = {{Working Paper}},
  pages        = {{1--65}},
  publisher    = {{SSRN}},
  title        = {{Green portfolios}},
  url          = {{http://dx.doi.org/10.2139/ssrn.3923578}},
  doi          = {{10.2139/ssrn.3923578}},
  year         = {{2021}},
}