Is There a Cost to Being Socially Responsible in Investing?

Abstract

In this study we address three questions concerning socially responsible investing. First, is the average return of a socially screened equity universe statistically dierent from the average return of an unscreened universe for the 1987±94 period? Second, do analysts' earnings per share forecasts aid a manager in selecting stocks in socially screened and unscreened universes? Third, can one use an expected return model incorporating both value and growth components to select stocks and create portfolios in the socially screened and unscreened equity universes such that one can outperform both universe benchmarks? We ®nd no statistically signi®cant dierences in the mean returns of unscreened and screened equity universes for the 1987± 94 period. Earnings forecasts and the knowledge of those forecasts add value in the creation of portfolios. We ®nd few statistically signi®cant dierences in the predictive power of the composite model to select stocks in both unscreened and screened equity universes. The estimated composite model oers the potential for substantial outperformance of socially screened and unscreened equity universes.

Do Sustainable Stocks Offer Diversification Benefits for Conventional Portfolios? An Empirical Analysis of Risk Spillovers and Dynamic Correlations

“…These studies, however, fail to provide clear-cut empirical evidence on whether SRI does yield higher returns after adjusting for risks. Similarly, studies on (b) ratings [46][47][48], and (c) screenings [49] in terms of sustainability, do not seem to provide clear cut evidence in terms of higher returns either. Studies of (d) predictability and determinants of returns and volatility [50,51], highlight the role of various forms of uncertainties related to economic policies; and (e) co-movements of SRI indexes and with conventional indexes across various regions [1,52] have been shown to exist, especially when nonlinearity is taken into account.…”

Ethical requirement and financial interest: a literature review on socially responsible investing

“…Hamilton et al (1993) find this first hypothesis consistent with a world in which social responsibility is not priced in the market, i.e., SR investors who want to sell their shares find enough conventional buyers for them, so share pricing is not affected. As Guerard (1997b) phrases it, being a socially conscious investors is at least not ''dumb''. This also means that SR companies do not acquire any benefit by acting accordingly, because their cost of capital is not reduced, compared to conventional companies.…”

The Ethical and Non Ethical Mutual Funds Comparison

“…The study uses a multi-disciplinary approach (Bauer et al, 2005;Guerard, 1997;Gray, 2002). Particularly, it is led by a Multivariate Analysis applying a MCA, which puts in evidence the principal characteristics of the mutual funds by their projection on the factorial plane and a Cluster Analysis to carry out typologies with particular characteristics of mutual funds (Corbetta, 2002;Fabbris, 1997).…”