When Green Investors Are Green Consumers

76 Pages Posted: 5 May 2022 Last revised: 24 Aug 2022

See all articles by Maxime Sauzet

Maxime Sauzet

Boston University, Questrom School of Business

Olivier David Zerbib

Boston University

Date Written: August 23, 2022

Abstract

We bring investors with preferences for green assets to a general equilibrium setting in which they also prefer consuming green goods. Their preferences for green goods induce consumption premia on expected returns that counterbalance the green premium stemming from their preferences for green assets. Because they provide green investors with a financial hedge when green goods become expensive, brown assets command lower consumption premia on average, and green investors allocate a larger share of their wealth towards them. Empirically, the average difference in consumption premia between green and brown assets gradually increased to reach 30 to 40 basis points per year and contributes to explaining the limited impact of green investing on polluting firms’ costs of capital.

Keywords: Sustainable Finance, Environmental Finance, Asset Pricing, Portfolio Choice

JEL Classification: G11, G12

Suggested Citation

Sauzet, Maxime and Zerbib, Olivier David, When Green Investors Are Green Consumers (August 23, 2022). Available at SSRN: https://ssrn.com/abstract=4098124 or http://dx.doi.org/10.2139/ssrn.4098124

Maxime Sauzet

Boston University, Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

HOME PAGE: http://sites.google.com/view/maximesauzet/

Olivier David Zerbib (Contact Author)

Boston University ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

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