Revealed Preference for Green Stocks: An Asset Demand Approach (Job Market Paper)


This paper combines a traditional portfolio construction problem with demand estimation techniques to estimate the demand for green stocks of US institutional investors. The methodology presented builds upon recent influential work on asset demand estimation in at least two dimensions. First, in addition to investor heterogeneity through differential beliefs about future returns, our framework allows for investors to care about the characteristics of the portfolio they are forming beyond those related directly to an expected return-versus-risk trade off. Second, by using a mixed logit demand specification, we can estimate asset demands that deliver more realistic substitution patterns across assets. Using data on the environmental performance of firms and quarterly stock holdings data from institutional investors, we estimate the demand for green stocks while controlling for return-related stock characteristics. We find that taste for green stocks fluctuates over time and by investor’s assets under management. In a counterfactual exercise we study the equity price effects of a ban on green investing for pension funds; we find that a portfolio with the top brown stocks is estimated to have capital gains of 5.9% due to the policy while a portfolio with the top green stocks is estimated to have capital losses of 7.3%.

Working Paper
Aarón Mora
Aarón Mora
Economics PhD Candidate

My research interests include econometrics, asset pricing and industrial organization.