Green transition, investment horizon, and dynamic portfolio decisions

Abstract This paper analyzes the implications of investors’ short-term oriented asset holding and portfolio decisions (or short-termism), its consequences on green investments. We adopt a dynamic model, which contrary to conventional static mean-variance models, allows us study optimal portfolios for different decision horizons. Our baseline model contains two assets, one with fluctuating returns another constant risk-free return. The can arise from fossil-fuel based sectors or clean energy related sectors. consider drivers short-termism: discount rate, nature discounting (exponential vs. hyperbolic), horizon investors itself. first these determinants short-termism wealth dynamics model. find that declines faster higher hyperbolic discounting, shorter horizon. extend our include assets returns. For both variants, we explore cases where innovation efforts are spent fossil fuel sources. Detailing in such way may allow better pathways empirical tests provide guidance some online financial making.