The effect of socially responsible investing on portfolio performance
AbstractMore and more investors apply socially responsible screens when building their stock portfolios. This raises the question whether these investors can increase their performance by incorporating such screens into their investment process. To answer this question we implement a simple trading strategy based on socially responsible ratings from the KLD Research & Analytics: Buy stocks with high socially responsible ratings and sell stocks with low socially responsible ratings. We find that this strategy leads to high abnormal returns of up to 8.7% per year. The maximum abnormal returns are reached when investors employ the best-in-class screening approach, use a combination of several socially responsible screens at the same time, and restrict themselves to stocks with extreme socially responsible ratings. The abnormal returns remain significant even after taking into account reasonable transaction costs. --
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Cologne, Centre for Financial Research (CFR) in its series CFR Working Papers with number 06-10.
Date of creation: 2007
Date of revision:
Contact details of provider:
Postal: Albertus Magnus Platz, 50923 Köln
Phone: 0221 / 470 5607
Fax: 0221 / 470 5179
Web page: http://cfr-cologne.de/english/version06/html/home.php
More information through EDIRC
Socially Responsible Investing; Portfolio Management; Trading Strategy;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- M14 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Corporate Culture; Social Responsibility
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Derwall, J.M.M. & GÃ¼nster, N.K. & Bauer, R. & Koedijk, C.G., 2004.
"The Eco-Efficiency Premium Puzzle,"
ERS-2004-043-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 Uni.
- Derwall, Jeroen & Guenster, Nadja & Bauer, Rob & Koedijk, Kees, 2005. "The eco-efficiency premium puzzle," Open Access publications from Maastricht University urn:nbn:nl:ui:27-19331, Maastricht University.
- Bauer, Rob & Koedijk, Kees & Otten, Roger, 2005. "International evidence on ethical mutual fund performance and investment style," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1751-1767, July.
- Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
- Bauer, Rob & Koedijk, Kees & Otten, Róger, 2005. "International evidence on ethical mutual fund performance and investment style," Open Access publications from Maastricht University urn:nbn:nl:ui:27-19330, Maastricht University.
- Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
- Paul Gompers & Joy Ishii & Andrew Metrick, 2003.
"Corporate Governance And Equity Prices,"
The Quarterly Journal of Economics,
MIT Press, vol. 118(1), pages 107-155, February.
- Paul A. Gompers & Joy L. Ishii & Andrew Metrick, 2002. "Corporate Governance and Equity Prices," Center for Financial Institutions Working Papers 02-32, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Paul A. Gompers & Joy L. Ishii & Andrew Metrick, 2001. "Corporate Governance and Equity Prices," NBER Working Papers 8449, National Bureau of Economic Research, Inc.
- N. Kreander & R.H. Gray & D.M. Power & C.D. Sinclair, 2005. "Evaluating the Performance of Ethical and Non-ethical Funds: A Matched Pair Analysis," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7-8), pages 1465-1493.
- Cristiana Mǎnescu, 2011.
"Stock returns in relation to environmental, social and governance performance: Mispricing or compensation for risk?,"
John Wiley & Sons, Ltd., vol. 19(2), pages 95-118, March/Apr.
- 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.
- Capelle-Blancard, Gunther & Monjon, Stéphanie, 2012. "The Performance of Socially Responsible Funds : Does the Screening Process Matter ?," Economics Papers from University Paris Dauphine 123456789/7347, Paris Dauphine University.
- Arno Riedl & Paul Smeets, 2013.
"Social Preferences and Portfolio Choice,"
CESifo Working Paper Series
4403, CESifo Group Munich.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).
If references are entirely missing, you can add them using this form.