Asset Pricing Theory of Climate Hedge Portfolios

Asset Pricing Theory of Climate Hedge Portfolios

In this video collaboration with MMF, Nobel Laureate and economist Robert Engle explores the asset pricing theory behind hedge portfolios, as well as how you would build a portfolio using either fundamental or statistical analysis.
Overview

Robert Engle argues that risky stocks are less desirable than stocks which are minimally risky. Stocks that are exposed to climate risk are not desirable but could expect to have higher expected returns and a hedge investor will want to short this risk. To build a hedge portfolio, fundamental analysis can be undertaken based on how climate change is going to impact industries or statistical analysis which recognises how stocks will react based on climate change news.

Key learning objectives:

  • Learn what a climate hedge portfolio is

  • Understand two analytic approaches to building a climate hedge portfolio

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Summary
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Expert
Robert Engle

Robert Engle

Robert Engle is a co-director of the Volatility and Risk Institute. He was awarded the 2003 Nobel Prize in Economic Sciences for his work on autoregressive conditional heteroskedasticity. He holds a Ph.D. in economics from Cornell University in New York, United States.

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