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Portfolio performance and environmental risk

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Abstract

This paper examines the performance of US stock portfolios constructed and rebalanced to have different environmental (EV) risk. EV risk is proxied by EV risk ratings from GES Investment Services. Portfolios with high EV risk generate higher raw returns than low EV risk portfolios, but when risk and other factors are controlled for using the three Fama-French factors and a momentum factor, the risk-adjusted returns of both high and low EV risk portfolios are not statistically different from zero. The evidence thus indicate that a portfolio of stocks with low EV risk, intended to be more responsible, neither underperform or outperform on a risk-adjusted basis.

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  • Olsson, Rickard, 2007. "Portfolio performance and environmental risk," Sustainable Investment and Corporate Governance Working Papers 2007/4, Sustainable Investment Research Platform.
    • Handle: RePEc:hhb:sicgwp:2007_004
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    File URL: http://web.abo.fi/fak/esf/fei/redovisa/kurser/Lasse/Mistra%20wp/sirp%20wp%2007-04%20-%20olsson.pdf
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    References listed on IDEAS

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    1. 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.
    2. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    3. Carhart, Mark M, 1997. "On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
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    Cited by:

    1. Semenova, Natalia, 2010. "Corporate Environmental Performance: Consistency of Metrics and Identification of Drivers," Sustainable Investment and Corporate Governance Working Papers 2010/9, Sustainable Investment Research Platform.
    2. Teresa Czerwinska, 2012. "The effectiveness of Social Responsible Investment on the stock market (Efektywnosc inwestycji spolecznie odpowiedzialnych na rynku akcji)," Problemy Zarzadzania, University of Warsaw, Faculty of Management, vol. 10(39), pages 129-140.

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    Keywords

    Socially responsible investment; environmental risk; portfolio performance evaluation;
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