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Ethical Investing Has No Portfolio Performance Cost

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  • Fu, Yufen
  • Wright, Danika
  • Blazenko, George

Abstract

We guide investors in three ethical investment applications by comparing ethically constrained versus unconstrained optimal portfolio methods that force well-behaved weights. With optimal readjustment upon constrained investing, in Sharpe ratio analysis, we find no evidence of a performance cost for sin-free, carbon-free, or Shariah portfolios even though, in the most exacting case, Shariah investing excludes roughly 65% of common shares from security selection. In each case, we identify the specific portfolio adjustments needed to prevent an ethical portfolio performance cost.

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  • Fu, Yufen & Wright, Danika & Blazenko, George, 2020. "Ethical Investing Has No Portfolio Performance Cost," Research in International Business and Finance, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:riibaf:v:52:y:2020:i:c:s0275531918305257
    DOI: 10.1016/j.ribaf.2019.101117
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    3. Deimante Teresiene & Daiva Budriene, 2021. "Business ethics and ethical investing: from historical, ethical approach to real investments," Technium Social Sciences Journal, Technium Science, vol. 17(1), pages 212-221, March.
    4. Rodríguez-García, Martha del Pilar & Galindo-Manrique, Alicia Fernanda & Cortez-Alejandro, Klender Aimer & Méndez-Sáenz, Alma Berenice, 2022. "Eco-efficiency and financial performance in Latin American countries: An environmental intensity approach," Research in International Business and Finance, Elsevier, vol. 59(C).
    5. Ida Ayu Agung Faradynawati & Inga-Lill Söderberg, 2022. "Sustainable Investment Preferences among Robo-Advisor Clients," Sustainability, MDPI, vol. 14(19), pages 1-16, October.
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    More about this item

    Keywords

    Sin-Free; Carbon-Free; Shariah; Investing; Normative Portfolio Theory;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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