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The cost of sustainability on optimal portfolio choices

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  • Stefano Herzel, Stefano

    ()
    (University of Roma Tor Vergata)

  • Marco Nicolosi, Marco

    (University of Perugia)

  • Starica, Catalin

    (University of Neuchatel)

Abstract

We examine the impact of sustainability criteria, as measured by the KLD scores, on optimal portfolio selection performed on an investment universe containing the equities in the S&P500 index and covering the period between 1993 and 2008. The optimizations are done according to the Markowitz mean-variance approach while sustainability constraints are introduced by eliminating from the investment pool those assets that do not comply to di®erent social responsibility criteria (screening). We compare the two efficient frontiers, i.e. the one without and the one with screening. A spanning test is performed to determine if the differences between the two types of efficient frontier are significant. We introduce a measure of how much an investor has to pay (through loss of return or through additional risk) in order to satisfy given sustainability criteria. The analysis is carried on separately on the three main dimensions of sustainability, namely Environmental, Social and Governance.

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Bibliographic Info

Paper provided by Sustainable Investment Research Platform in its series Sustainable Investment and Corporate Governance Working Papers with number 2010/15.

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Length: 27 pages
Date of creation: 11 Oct 2010
Date of revision:
Handle: RePEc:hhb:sicgwp:2010_015

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Postal: Economics of Corporate Sustainability Management, Department of Industrial Economics and Management, Royal Institute of Technology, SE-100 44 Stockholm, SWEDEN
Phone: 08-790 78 61
Fax: 08-790 76 17
Web page: http://www.sirps.se
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Keywords: Sustainability; Optimal portfolio;

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Cited by:
  1. Francesco Venturini, 2011. "Product variety, product quality, and evidence of Schumpeterian endogenous growth: a note," Quaderni del Dipartimento di Economia, Finanza e Statistica 93/2011, Università di Perugia, Dipartimento Economia, Finanza e Statistica.
  2. Damiani, Mirella & Pompei, Fabrizio & Ricci, Andrea, 2011. "Temporary job protection and productivity growth in EU economies," MPRA Paper 29698, University Library of Munich, Germany.
  3. Boudt, Kris & Cornelissen, Jonathan & Croux, Christophe, 2013. "The impact of a sustainability constraint on the mean-tracking error efficient frontier," Economics Letters, Elsevier, vol. 119(3), pages 255-260.
  4. Marco Nicolosi & Stefano Grassi & Elena Stanghellini, 2011. "How to measure Corporate Social Responsibility," Quaderni del Dipartimento di Economia, Finanza e Statistica 96/2011, Università di Perugia, Dipartimento Economia, Finanza e Statistica.

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