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Corporate social responsibility and stock market performance

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  • Leonardo Becchetti
  • Rocco Ciciretti

Abstract

We analyse the performance of a large sample of Socially Responsible (SR) stocks relative to a Control Sample (CS) of equivalent size for 14 years. We find that individual SR stocks have on average significantly lower returns and unconditional variance than CS stocks when controlling for industry effects. This result is paralleled by descriptive evidence on the lower (daily return) mean and variance of the buy-and-hold strategies on the SR portfolio with respect to those on the control portfolio. Beyond this first evidence we discover that: (i) individual SR stocks are significantly less risky when controlling for conditional heteroskedasticity; (ii) there are no significant differences in risk-adjusted returns between the two buy-and-hold strategies on (SR and CS) portfolios; (iii) the buy-and-hold strategies on the SR portfolio exhibits significantly lower exposition to systematic nondiversifiable risk. These last findings are robust to different-market model, Generalized Autoregressive Conditional Heteroskedasticity (GARCH(1, 1)), Asymmetric Power ARCH (APARCH(1, 1))-model specifications.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 19 (2009)
Issue (Month): 16 ()
Pages: 1283-1293

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Handle: RePEc:taf:apfiec:v:19:y:2009:i:16:p:1283-1293

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  1. Tiroley, Jean, 2000. "Corporate Governance," CEI Working Paper Series 2000-1, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  2. Bauer, Bob & Koedijk, Kees & Otten, Roger, 2002. "International Evidence on Ethical Mutual Fund Performance and Investment Style," CEPR Discussion Papers 3452, C.E.P.R. Discussion Papers.
  3. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
  4. Ding, Zhuanxin & Granger, Clive W. J. & Engle, Robert F., 1993. "A long memory property of stock market returns and a new model," Journal of Empirical Finance, Elsevier, vol. 1(1), pages 83-106, June.
  5. Catherine M. Paul & Donald Siegel, 2006. "Corporate social responsibility and economic performance," Journal of Productivity Analysis, Springer, vol. 26(3), pages 207-211, December.
  6. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
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Cited by:
  1. Leonardo Becchetti, 2012. "Voting with the wallet," International Review of Economics, Springer, vol. 59(3), pages 245-268, September.
  2. Shunsuke Managi & Tatsuyoshi Okimoto & Akimi Matsuda, 2012. "Do socially responsible investment indexes outperform conventional indexes?," Applied Financial Economics, Taylor & Francis Journals, vol. 22(18), pages 1511-1527, September.
  3. Manescu, Cristiana, 2009. "Stock returns in relation to environmental, social and governance performance: mispricing or compensation for risk?," Working Papers in Economics 376, University of Gothenburg, Department of Economics, revised 01 Mar 2010.
  4. Scholtens, Bert, 2008. "A note on the interaction between corporate social responsibility and financial performance," Ecological Economics, Elsevier, vol. 68(1-2), pages 46-55, December.
  5. Wu, Meng-Wen & Shen, Chung-Hua, 2013. "Corporate social responsibility in the banking industry: Motives and financial performance," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3529-3547.
  6. Sadorsky, Perry, 2014. "Modeling volatility and conditional correlations between socially responsible investments, gold and oil," Economic Modelling, Elsevier, vol. 38(C), pages 609-618.

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