Proportional warm-glow theory and asset pricing
Green preference of investors has become significantly larger since the financial crisis of 2007.
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New article by Johannes Kabderian Dreyer and William T. Smith
Investors may feel good about themselves from making socially responsible investments; they may get a “warm glow” from going green. Dreyer, Sharma and Smith (2023) estimate a model of “warm glow” investment where investors derive utility from the total amount invested in green assets. In this paper the authors quasi-replicate their paper to estimate an alternative form of warm-glow preferences where people get utility from the share of their wealth invested in green assets. They show that the green preference of investors has become significantly larger since the financial crisis of 2007.