Title: Energy transition, asset price fluctuations,and dynamic portfolio decisions
Authors: Willi Semmler - New School for Social Research (United States)
Kai Lessmann - Potsdam Institute for Climate Impact Research (Germany)
Ibrahim Tahri - PIK (Potsdam Institute for Climate Impact Research) (Germany) [presenting]
Abstract: The implications of short-termism on portfolio decisions of investors, and its potential consequences on green investments, are analyzed. We study a dynamic portfolio choice problem that contains two assets, one asset with fluctuating returns and another asset with a constant risk-free return. Fluctuating returns can arise from fossil or clean energy-related assets. Short-termism is seen to be driven by discount rates (exponential and hyperbolic) and the decision horizon of investors. We also explore the impact of the fluctuating assets returns on the fate of the portfolio, for both a deterministic and stochastic model variant, and in cases where innovation efforts are spent for fossil fuel or clean energy sources. Detailing dynamic portfolio decision in such a way may allow us for better pathways to empirical tests.