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29 février 2024
- handle: 10670/1.xlzajg
- hal: hal-04430743
- doi: 10.3905/jpm.2024.1.586
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info:eu-repo/semantics/altIdentifier/doi/10.3905/jpm.2024.1.586
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Jean-Charles Bertrand et al., « The Impact of Climate Change Risk on Long-Term Asset Allocation », HAL-SHS : économie et finance, ID : 10.3905/jpm.2024.1.586
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The authors propose a framework for long-term cross-asset portfolio choice in which the estimation of the covariance matrix is subject to climate risk. They model the future volatility and correlation of assets as a linear function of three types of forward-looking variables: the long-term future average, climate-aware projections of economic indicators, and scenarios for the temperature anomaly. They analyze the shifts from a baseline 60/40 equity/bond allocation when taking climate risk into account. The takeaways are the following: 1) these changes are small and mostly favorable to bonds if the focus is on the estimation of risk components; 2) including climate-driven expected returns in the optimization substantially alters the compositions but to the benefit of equities; 3) in all cases, the risk-adjusted returns decrease, often significantly, when taking climate impact into account.