Why Do Universities Survivest Fossil Fuels?
Introduction
In this case we find that several students at various universities around the United States are calling on endowment funds to divest from oil, coal and mining companies with the hope of slowing down the development of natural resources, which in turn is hypothesized to lead to climate change. Although many professors at Harvard University are pro-divesting in those types of companies, the president stated that she did not believe divesting would be “wise or effective” for the university’s take on climate change. After doing portfolio analysis, if KU were to divest, we found that it would create a stigma against the fossil fuel industry and would show that KU values a more “green” planet. On the other hand, if KU was against the divestiture, we find that fossil fuels provide much greater returns, a larger pool for security diversification of the portfolio and finally the transaction costs …show more content…
Even with a portfolio which maximizes its Sharpe ratio. The Sharpe ratio provides universities/investors with the highest return by investing in industries with optimal weights while maintaining a reasonable amount of risk. The combined investment in fossil fuels makes up less than 20% of the weight of the portfolio. Even this is a pretty modest investment in fossil fuels because it reality, the overall investment in fossil fuels is potentially likely to be less than this. When comparing the Sharpe ratio of the portfolio which includes all of the industries – 0.2382 (in which university Endowments distribute their investment funds) to the portfolios which do not include one of the four fossil fuel industries (i.e. without coal – 0.1967, smoke – 0.2372, oil – 0.1947, or mines – 0.2378), it can be seen that the overall Sharpe ratio with the fossil fuels provides the largest Sharpe
In this case we find that several students at various universities around the United States are calling on endowment funds to divest from oil, coal and mining companies with the hope of slowing down the development of natural resources, which in turn is hypothesized to lead to climate change. Although many professors at Harvard University are pro-divesting in those types of companies, the president stated that she did not believe divesting would be “wise or effective” for the university’s take on climate change. After doing portfolio analysis, if KU were to divest, we found that it would create a stigma against the fossil fuel industry and would show that KU values a more “green” planet. On the other hand, if KU was against the divestiture, we find that fossil fuels provide much greater returns, a larger pool for security diversification of the portfolio and finally the transaction costs …show more content…
Even with a portfolio which maximizes its Sharpe ratio. The Sharpe ratio provides universities/investors with the highest return by investing in industries with optimal weights while maintaining a reasonable amount of risk. The combined investment in fossil fuels makes up less than 20% of the weight of the portfolio. Even this is a pretty modest investment in fossil fuels because it reality, the overall investment in fossil fuels is potentially likely to be less than this. When comparing the Sharpe ratio of the portfolio which includes all of the industries – 0.2382 (in which university Endowments distribute their investment funds) to the portfolios which do not include one of the four fossil fuel industries (i.e. without coal – 0.1967, smoke – 0.2372, oil – 0.1947, or mines – 0.2378), it can be seen that the overall Sharpe ratio with the fossil fuels provides the largest Sharpe