Asset Diversification Versus Climate Action

56 Pages Posted: 13 Aug 2020

See all articles by Christoph Hambel

Christoph Hambel

Goethe University Frankfurt

Holger Kraft

Goethe University Frankfurt

Rick van der Ploeg

affiliation not provided to SSRN

Multiple version iconThere are 3 versions of this paper

Date Written: 2020

Abstract

Asset pricing and climate policy are analyzed in a global economy where consumption goods are produced by both a green and a carbon-intensive sector. We allow for endogenous growth and three types of damages from global warming. It is shown that, initially, the desire to diversify assets complements the attempt to mitigate economic damages from climate change. In the longer run, however, a trade-off between diversification and climate action emerges. We derive the optimal carbon price, the equilibrium risk-free rate, and risk premia. Climate disasters, which are more likely to occur sooner as temperature rises, significantly increase risk premia.

Keywords: decarbonisation, diversification, carbon price, asset prices, green assets, disaster risk

JEL Classification: D810, G010, G120, Q500, Q540

Suggested Citation

Hambel, Christoph and Kraft, Holger and der Ploeg, Rick van, Asset Diversification Versus Climate Action (2020). Available at SSRN: https://ssrn.com/abstract=3671262 or http://dx.doi.org/10.2139/ssrn.3671262

Christoph Hambel (Contact Author)

Goethe University Frankfurt ( email )

Faculty of Economics and Business
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Holger Kraft

Goethe University Frankfurt ( email )

Faculty of Economics and Business
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Rick van Der Ploeg

affiliation not provided to SSRN

No Address Available

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