Our speaker will be Steven Baker (McIntire School of Commerce, University of Virginia).

He will give a talk on "Asset Prices and Portfolios with Externalities".

The talk will take place at 12:00-13:00 in seminar room D4.0.019.

Abstract: Elementary portfolio theory implies that environmentalists optimally hold more shares of polluting firms than non-environmentalists, and that polluting firms attract more investment than otherwise identical non-polluting firms. These results reflect the demand to hedge against high pollution states. Pigouvian taxation can reverse the aggregate investment results, but environmentalists still overweight polluters. We introduce countervailing motives for environmentalists to underweight polluters, com- paring the implications when environmentalists coordinate to internalize pollution, or have nonpecuniary disutility from holding polluter stock. With nonpecuniary disutil- ity, introducing a green derivative product may dramatically alter who invests most in polluters, but has no impact on aggregate pollution.