An Alternative Framework for Socially Responsible Portfolios Optimization Applied to the Moroccan Stock Exchange

Abstract

The purpose of this article is to propose an alternative approach for portfolio optimization combining financial and ethical constraints in one hand, and objective and subjective investor’s preferences in the other hand. This approach intends to support investors in selecting and optimizing financial and social portfolio’s performances. More precisely, we introduce analytic hierarchy process (AHP) to measure the ethical performance (EP) score of each asset considering ethical criteria. For its part, fuzzy multiple criteria decision making (FMCDM) is used to determine the overall financial quality score of assets with respect to key financial criteria i.e., short term return, long term return, and risk. Besides, interactive fuzzy programming approach is applied to support the investor’s decision, considering its subjective preferences. The robustness of our approach is tested through an empirical study involving the case of the Casablanca Stock Exchange (CSE). The results give evidence that the Socially Responsible (SR) Portfolio have performed similar to the conventional one, as no significant differences were found in term of return. However, the SR portfolio allows the investor to achieve his ethical goal, against a slight financial sacrifice.

Socially Responsible Portfolio Selection: An Interactive Intuitionistic Fuzzy Approach

“…We propose an intuitionistic fuzzy interactive approach to solve the problem (6). That approach is identified in the following steps:…”

“…First, based on the simple fuzzy interactive process proposed by [6], we solved the model (6). Then, we solved the same model (6) with the proposed approach. Finally, we compared the obtained results of both approaches (see Table 2).…”

“…In order to help investors make sound decisions on portfolio selection, various extensions of Markowitz's model have been developed over the last few decades. Nevertheless, most of them are still based on quantitative data [6,7].…”

“…In the context of the worldwide growth of SRI worldwide, we have gathered and presented some articles that investigate different aspects of the portfolio optimization process. In particular, Hanine et al [6] provide investors that seek to invest only in the ethical assets with a reference tool that meets their needs. The authors use a fuzzy interactive approach to solve a proposed portfolio selection problem.…”

“…The aim of this study was to suggest a fuzzy intuitionistic interactive approach in order to solve a socially responsible portfolio selection problem and then to compare the finding results with a fuzzy interactive approach [6,8]. So far, a very small number of studies have investigated optimal ways to construct socially responsible portfolios by employing optimization methods.…”