Thomas Fischer

Docent

Green portfolios

Författare

Thomas Fischer
Frederik Lundtofte

Summary, in English

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.

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