Unraveling the Trade-off between Sustainability and Returns: A Multivariate Utility Analysis

Marcos Escobar-Anel and Yiyao Jiao
Authors registered in the RePEc Author Service: Marcos Escobar Anel ()

Papers from arXiv.org

Abstract: This paper proposes an expected multivariate utility analysis for ESG investors in which green stocks, brown stocks, and a market index are modeled in a one-factor, CAPM-type structure. This setting allows investors to accommodate their preferences for green investments according to proper risk aversion levels. We find closed-form solutions for optimal allocations, wealth and value functions. As by-products, we first demonstrate that investors do not need to reduce their pecuniary satisfaction in order to increase green investments. Secondly, we propose a parameterization to capture investors' preferences for green assets over brown or market assets, independent of performance. The paper uses the RepRisk Rating of U.S. stocks from 2010 to 2020 to select companies that are representative of various ESG ratings. Our empirical analysis reveals drastic increases in wealth allocation toward high-rated ESG stocks for ESG-sensitive investors; this holds even as the overall level of pecuniary satisfaction is kept unchanged.

Date: 2023-07
New Economics Papers: this item is included in nep-ene, nep-env and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2307.12161 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2307.12161

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().