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Corporate social responsibility and stock market performance

  • Leonardo Becchetti
  • Rocco Ciciretti

We analyse the performance of a large sample of Socially Responsible (SR) stocks relative to a Control Sample (CS) of equivalent size for 14 years. We find that individual SR stocks have on average significantly lower returns and unconditional variance than CS stocks when controlling for industry effects. This result is paralleled by descriptive evidence on the lower (daily return) mean and variance of the buy-and-hold strategies on the SR portfolio with respect to those on the control portfolio. Beyond this first evidence we discover that: (i) individual SR stocks are significantly less risky when controlling for conditional heteroskedasticity; (ii) there are no significant differences in risk-adjusted returns between the two buy-and-hold strategies on (SR and CS) portfolios; (iii) the buy-and-hold strategies on the SR portfolio exhibits significantly lower exposition to systematic nondiversifiable risk. These last findings are robust to different-market model, Generalized Autoregressive Conditional Heteroskedasticity (GARCH(1, 1)), Asymmetric Power ARCH (APARCH(1, 1))-model specifications.

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Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 19 (2009)
Issue (Month): 16 ()
Pages: 1283-1293

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Handle: RePEc:taf:apfiec:v:19:y:2009:i:16:p:1283-1293
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  1. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
  2. Tirole, Jean, 1999. "Corporate Governance," CEPR Discussion Papers 2086, C.E.P.R. Discussion Papers.
  3. Bauer, Bob & Koedijk, Kees & Otten, Roger, 2002. "International Evidence on Ethical Mutual Fund Performance and Investment Style," CEPR Discussion Papers 3452, C.E.P.R. Discussion Papers.
  4. Catherine J. Morrison-Paul & Donald S. Siegel, 2006. "Corporate Social Responsibility and Economic Performance," Rensselaer Working Papers in Economics 0605, Rensselaer Polytechnic Institute, Department of Economics.
  5. Ding, Zhuanxin & Granger, Clive W. J. & Engle, Robert F., 1993. "A long memory property of stock market returns and a new model," Journal of Empirical Finance, Elsevier, vol. 1(1), pages 83-106, June.
  6. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
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