Tri-criterion inverse portfolio optimization with application to socially responsible mutual funds
We present a framework for inverse optimization in a Markowitz portfolio model that is extended to include a third criterion. The third criterion causes the traditional nondominated frontier to become a surface. Until recently, it had not been possible to compute such a surface. But by using a new method that is able to generate the nondominated surfaces of tri-criterion portfolio selection problems, we are able to compute via inverse optimization the implied risk tolerances of given funds that pursue an additional objective beyond risk and return. In applying this capability to a broad sample of conventional and socially responsible (SR) mutual funds, we find that there appears to be no significant evidence that social responsibility issues, after the screening stage, are further taken into account in the asset allocation process, which is a result that is likely to be different from what many SR investors would expect.
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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.:
- Chamberlain, Gary, 1983. "A characterization of the distributions that imply mean--Variance utility functions," Journal of Economic Theory, Elsevier, vol. 29(1), pages 185-201, February.
- Dorfleitner, Gregor & Utz, Sebastian, 2012.
"Safety first portfolio choice based on financial and sustainability returns,"
European Journal of Operational Research,
Elsevier, vol. 221(1), pages 155-164.
- Dorfleitner, Gregor & Utz, Sebastian, 2011. "Safety first portfolio choice based on financial and sustainability returns," University of Regensburg Working Papers in Business, Economics and Management Information Systems 452, University of Regensburg, Department of Economics.
- Zakri Y. Bello, 2005. "Socially Responsible Investing And Portfolio Diversification," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 28(1), pages 41-57.
- Renneboog, Luc & Ter Horst, Jenke & Zhang, Chendi, 2008. "Socially responsible investments: Institutional aspects, performance, and investor behavior," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1723-1742, September.
- Abdelaziz, Fouad Ben & Aouni, Belaid & Fayedh, Rimeh El, 2007. "Multi-objective stochastic programming for portfolio selection," European Journal of Operational Research, Elsevier, vol. 177(3), pages 1811-1823, March.
- Tobin, James, 1969. "Comment on Borch and Feldstein," Review of Economic Studies, Wiley Blackwell, vol. 36(105), pages 13-14, January.
- 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.
- Ballestero, Enrique, 2001. "Stochastic goal programming: A mean-variance approach," European Journal of Operational Research, Elsevier, vol. 131(3), pages 476-481, June.
- Hallerbach, Winfried & Ning, Haikun & Soppe, Aloy & Spronk, Jaap, 2004.
"A framework for managing a portfolio of socially responsible investments,"
European Journal of Operational Research,
Elsevier, vol. 153(2), pages 517-529, March.
- 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 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.
- Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
- 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.
- Bollen, Nicolas P. B., 2007. "Mutual Fund Attributes and Investor Behavior," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(03), pages 683-708, September.
- J. G. Kallberg & W. T. Ziemba, 1983. "Comparison of Alternative Utility Functions in Portfolio Selection Problems," Management Science, INFORMS, vol. 29(11), pages 1257-1276, November.
- 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, vol. 216(2), pages 487-494.
- Bierwag, G O, 1974. "The Rationale of the Mean-Standard Deviation Analysis: Comment," American Economic Review, American Economic Association, vol. 64(3), pages 431-33, June.
- Tsiang, S C, 1972. "The Rationale of the Mean-Standard Deviation Analysis, Skewness Preference, and the Demand for Money," American Economic Review, American Economic Association, vol. 62(3), pages 354-71, June.
- Derwall, Jeroen & Koedijk, Kees & Ter Horst, Jenke, 2011. "A tale of values-driven and profit-seeking social investors," Journal of Banking & Finance, Elsevier, vol. 35(8), pages 2137-2147, August.
- Levy, Haim, 1974. "The Rationale of the Mean-Standard Deviation Analysis: Comment," American Economic Review, American Economic Association, vol. 64(3), pages 434-41, June.
- Feldstein, Martin S, 1969. "Mean-Variance Analysis in the Theory of Liquidity Preference and Portfolio Selection," Review of Economic Studies, Wiley Blackwell, vol. 36(105), pages 5-12, January.
When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:234:y:2014:i:2:p:491-498. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.