Optimal Portfolio Selection under Timing Risk of the Green Transition

This study addresses scenarios with uncertain timing of the green transition by constructing a stock price model with jump processes, deriving optimal portfolio solutions for ambiguity-averse investors, and providing a verification theorem. The problem is split into pre- and post-transition stages for solving, with logarithmic utility, ambiguity-neutral, and worst-case problems all being special cases of this general framework. Empirical results show that when green and brown stock prices are positively correlated, investors aware of transition risk increase their holdings of green stocks and reduce holdings of brown stocks.