Dialling down carbon intensity in portfolios could have less of an impact on risk and return than some might think, but the impact will vary depending on the sectors, styles and regions investors are weighted towards. Globally oriented investors can potentially reduce carbon intensity with a small addition of tracking error, but those wanting to address carbon intensity with a high exposure to Australian stocks might find it more difficult.
What if we could find investment opportunities based on how people say things, as much as what they say?
It’s hard not to react to what the markets are doing. It can be tempting to sell out of certain asset classes or follow the herd to the ‘next best thing’ but fortune favours the patient investor.
Conventional economic theory assumes individuals are perfectly rational in their decision making under uncertainty. This is usually known as expected utility theory. It is different to prospect theory, which represents more how people actually behave (“irrationally”?) rather than how they are expected to behave.
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