Energy Transition, Asset Price Fluctuations, and Dynamic Portfolio Decisions

24 Pages Posted: 10 Nov 2020

See all articles by Willi Semmler

Willi Semmler

The New School - Department of Economics; Universitaet Bielefeld; IIASA

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Date Written: September 21, 2020

Abstract

This paper analyzes the implications of short-termism on portfolio decisions of investors, and its potential consequences on green investments. 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 from 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 decisions in such a way may allow us for better pathways to empirical tests.

Keywords: Short-termism, Decision horizon, Hyperbolic discounting

JEL Classification: E47, G11

Suggested Citation

Semmler, Willi, Energy Transition, Asset Price Fluctuations, and Dynamic Portfolio Decisions (September 21, 2020). Available at SSRN: https://ssrn.com/abstract=3696295 or http://dx.doi.org/10.2139/ssrn.3696295

Willi Semmler (Contact Author)

The New School - Department of Economics ( email )

65 Fifth Avenue
New York, NY 10003
United States

HOME PAGE: http://www.newschool.edu/nssr/faculty/?id=4e54-6b79-4e41-3d3d

Universitaet Bielefeld ( email )

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Bielefeld, NRW
Germany

IIASA ( email )

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Laxenburg/Austria, A-2361
Austria

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