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Safety first portfolio choice based on financial and sustainability returns

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  • Dorfleitner, Gregor

    ()

  • Utz, Sebastian

    ()

Abstract

This paper lays the mathematical foundations of the notion of an investment's sustainability return and investigates three different models of portfolio selection with probabilistic constraints for safety first investors caring about the financial and the sustainability consequences of their investments. The discussion of these chance-constrained programming problems for stochastic and deterministic sustainability returns includes theoretical results especially on the existence of a unique solution under certain conditions, an illustrating example, and a computational time analysis. Furthermore, we conclude that a simple convex combination of financial and sustainability returns - yielding a new univariate decision variable - is not sufficiently general.

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File URL: http://epub.uni-regensburg.de/19914/3/Regensburger_Diskusionsbeitr%C3%A4ge_452.pdf
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Bibliographic Info

Paper provided by University of Regensburg, Department of Economics in its series University of Regensburg Working Papers in Business, Economics and Management Information Systems with number 452.

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Date of creation: 10 Jan 2011
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Handle: RePEc:bay:rdwiwi:19914

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Keywords: Finance; Socially Responsible Investing; Sustainability Value; Safety First Investor;

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  1. Zakri Y. Bello, 2005. "Socially Responsible Investing And Portfolio Diversification," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, Southern Finance Association;Southwestern Finance Association, vol. 28(1), pages 41-57.
  2. Abdelaziz, Fouad Ben & Aouni, Belaid & Fayedh, Rimeh El, 2007. "Multi-objective stochastic programming for portfolio selection," European Journal of Operational Research, Elsevier, Elsevier, vol. 177(3), pages 1811-1823, March.
  3. Hallerbach, W.G.P.M. & Ning, H. & Soppe, A.B.M. & Spronk, J., 2002. "A Framework for Managing a Portfolio of Socially Responsible Investments," ERIM Report Series Research in Management, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasm ERS-2002-54-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
  4. Watanabe, Tsunemi & Ellis, Hugh, 1994. "A joint chance-constrained programming model with row dependence," European Journal of Operational Research, Elsevier, Elsevier, vol. 77(2), pages 325-343, September.
  5. Benson, Karen L. & Humphrey, Jacquelyn E., 2008. "Socially responsible investment funds: Investor reaction to current and past returns," Journal of Banking & Finance, Elsevier, Elsevier, vol. 32(9), pages 1850-1859, September.
  6. Bollen, Nicolas P. B., 2007. "Mutual Fund Attributes and Investor Behavior," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 42(03), pages 683-708, September.
  7. Galema, Rients & Plantinga, Auke & Scholtens, Bert, 2008. "The stocks at stake: Return and risk in socially responsible investment," Journal of Banking & Finance, Elsevier, Elsevier, vol. 32(12), pages 2646-2654, December.
  8. M. Ryan Haley & Charles Whiteman, 2008. "Generalized Safety First and a New Twist on Portfolio Performance," Econometric Reviews, Taylor & Francis Journals, Taylor & Francis Journals, vol. 27(4-6), pages 457-483.
  9. Ballestero, Enrique & Bravo, Mila & Pérez-Gladish, Blanca & Arenas-Parra, Mar & Plà-Santamaria, David, 2012. "Socially Responsible Investment: A multicriteria approach to portfolio selection combining ethical and financial objectives," European Journal of Operational Research, Elsevier, Elsevier, vol. 216(2), pages 487-494.
  10. Huang, Xiaoxia, 2008. "Portfolio selection with a new definition of risk," European Journal of Operational Research, Elsevier, Elsevier, vol. 186(1), pages 351-357, April.
  11. Renneboog, Luc & Ter Horst, Jenke & Zhang, Chendi, 2008. "Socially responsible investments: Institutional aspects, performance, and investor behavior," Journal of Banking & Finance, Elsevier, Elsevier, vol. 32(9), pages 1723-1742, September.
  12. Arzac, Enrique R. & Bawa, Vijay S., 1977. "Portfolio choice and equilibrium in capital markets with safety-first investors," Journal of Financial Economics, Elsevier, Elsevier, vol. 4(3), pages 277-288, May.
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Cited by:
  1. Utz, Sebastian & Wimmer, Maximilian & Hirschberger, Markus & Steuer, Ralph E., 2014. "Tri-criterion inverse portfolio optimization with application to socially responsible mutual funds," European Journal of Operational Research, Elsevier, Elsevier, vol. 234(2), pages 491-498.
  2. Cabello, J.M. & Ruiz, F. & Pérez-Gladish, B. & Méndez-Rodríguez, P., 2014. "Synthetic indicators of mutual funds’ environmental responsibility: An application of the Reference Point Method," European Journal of Operational Research, Elsevier, Elsevier, vol. 236(1), pages 313-325.
  3. Markus Hirschberger & Ralph E. Steuer & Sebastian Utz & Maximilian Wimmer, 2012. "Is socially responsible investing just screening? Evidence from mutual funds," SFB 649 Discussion Papers, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany SFB649DP2012-025, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.

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