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Portfolio Allocation and Optimization with Carbon Offsets: Is it Worth the While?

  • We explore whether the integration of carbon offsets into investment portfolios improves perfor-mance. Our results show that investment strategies that include such offsets achieve higher Sharpe Ratios than the diversified benchmark portfolios. The efficient frontier of optimal portfolio choices is shifted upwards as a result of including compliance and voluntary carbon offsets in the portfolio. Our results also show that while diversified portfolios may benefit from carbon offsets integration, voluntary carbon offsets are significantly more sensitive to exogenous shocks than compliance carbon allowances. All these results are novel and may encourage investors to invest in such sustainable asset classes.

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Author:Carsten Müller, Patrick Behr, Papa Orgen
Series (Serial Number):Discussion Papers in Business and Economics (23)
Document Type:Working Paper
Date of Publication (online):2023/01/23
Date of first Publication:2023/01/23
Publishing Institution:Hochschule Fulda
Granting Institution:Hochschule Fulda, Wirtschaft
Release Date:2023/01/24
Tag:Carbon Offsets; Carbon Pricing; Climate Finance; Portfolio Allocation and Optimization; Volatility Spillover
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoEinfaches Nutzungsrecht

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