Carbon-adjusted portfolio selection: A counterfactual analysis

Mohammed Kharbach, Amine Ben Amar and Hafid Lalioui

Economics Letters, 2025, vol. 246, issue C

Abstract: We investigate investor behavior in a counterfactual scenario where shareholders are subject to a carbon tax, and we compare the structure and performance of the carbon-adjusted portfolio to those of the mean-variance portfolio. Results suggest that applying such a tax does not lead to significant changes in portfolio structure. The impact on performance becomes relatively noticeable only if the tax is particularly stringent. Therefore, implementing a carbon tax could be justified, as it may support decarbonization, at least partially, without significantly affecting investors’ economic outcomes.

Keywords: GHG emissions; Carbon-adjusted portfolio; European stocks; Reward-to-volatility analysis (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:246:y:2025:i:c:s016517652400555x

DOI: 10.1016/j.econlet.2024.112071

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