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Is there a Difference? The Performance Characteristics of SRI Equity Indexes

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  • Schröder, Michael

Abstract

Investments in socially responsible investments (SRI) are still a small, but growing segment of international capital markets. This study analyses whether a SRI screening process applied to equities results in a different performance outcome compared to relevant conventional benchmark indexes. In contrast to other studies, the analysis concentrates on SRI indexes and not on investment funds. This has several advantages, which include that the transaction costs of funds, the timing activities and the skill of the fund management do not have to be considered. This leads to a relatively direct measure of the performance effects of SRI screens. The 29 SRI stock indexes are analysed by single-factor models with benchmarks that closely approximate the investment universe of the SRI stock indexes and by multi-equation systems that also exploit the information in the cross-section. The results show that SRI stock indexes do not exhibit a different risk-adjusted return than conventional benchmarks. But many SRI indexes have a higher risk relative to the benchmarks. These findings are robust to the use of different sets of benchmark indexes and apply to all common types of SRI screening.

Suggested Citation

  • Schröder, Michael, 2005. "Is there a Difference? The Performance Characteristics of SRI Equity Indexes," ZEW Discussion Papers 05-50, ZEW - Leibniz Centre for European Economic Research.
  • Handle: RePEc:zbw:zewdip:4276
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    Cited by:

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    2. Matthew W. Sherwood & Julia L. Pollard, 2018. "The risk-adjusted return potential of integrating ESG strategies into emerging market equities," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 8(1), pages 26-44, January.
    3. Konstantina Kappou & Ioannis Oikonomou, 2016. "Is There a Gold Social Seal? The Financial Effects of Additions to and Deletions from Social Stock Indices," Journal of Business Ethics, Springer, vol. 133(3), pages 533-552, February.
    4. Mohammad, Nazeeruddin & Ashraf, Dawood, 2015. "The market timing ability and return performance of Islamic equities: An empirical study," Pacific-Basin Finance Journal, Elsevier, vol. 34(C), pages 169-183.
    5. Hooi Hooi Lean & Duc Khuong Nguyen, 2014. "Policy uncertainty and performance characteristics of sustainable investments across regions around the global financial crisis," Applied Financial Economics, Taylor & Francis Journals, vol. 24(21), pages 1367-1373, November.
    6. Urs von Arx, 2005. "Principle guided investing: The use of negative screens and its implications for green investors," CER-ETH Economics working paper series 05/45, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    7. Wei Rong Ang, 2015. "Sustainable investment in Korea does not catch a cold when the United States sneezes," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 5(1-2), pages 16-26, April.
    8. Klaus-Michael Menz, 2010. "Corporate Social Responsibility: Is it Rewarded by the Corporate Bond Market? A Critical Note," Journal of Business Ethics, Springer, vol. 96(1), pages 117-134, September.
    9. Oscar Valdemar De la Torre Torres & Luis Guadalupe Macías Trejo, 2017. "Los beneficios de la inversión socialmente responsable en el desempeño de fondos de pensiones mexicanos," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 12(3), pages 67-87, Julio-Sep.
    10. Fafaliou, Irene & Giaka, Maria & Konstantios, Dimitrios & Polemis, Michael, 2020. "Firms’ Sustainability Performance and Market Longevity," MPRA Paper 101445, University Library of Munich, Germany.

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    More about this item

    Keywords

    Socially responsible investing; equity indexes; performance; risk;
    All these keywords.

    JEL classification:

    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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