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Minimum variance investing under sustainability constraints

Author

Listed:
  • Marohn, Marcel
  • Auer, Benjamin R.

Abstract

Motivated by the recent rehabilitation of traditional portfolio theory and the growing interest of investors in integrating corporate sustainability into their investment decisions, this note derives the explicit weight formula of the global minimum variance portfolio in a mean–variance portfolio optimization setup with sustainability constraints. Additionally, it identifies the critical boundary a sustainability restriction must satisfy in order to affect portfolio weights and provides an analytic expression for the important two-asset optimization case. Finally, a supplementary empirical application illustrates the consequences of effective restrictions on investment performance and portfolio composition.

Suggested Citation

  • Marohn, Marcel & Auer, Benjamin R., 2025. "Minimum variance investing under sustainability constraints," Economics Letters, Elsevier, vol. 256(C).
    • Handle: RePEc:eee:ecolet:v:256:y:2025:i:c:s0165176525003982
    DOI: 10.1016/j.econlet.2025.112561
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    References listed on IDEAS

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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