Socially Responsible Investment: A Comparison between the Performance of Sustainable and Traditional Stock Indexes

Abstract

Abstract:The doubt about whether socially responsible investment is a viable strategy for investors seeking to maximize both social and financial returns is the central question of this paper. This is addressed by investigating whether portfolio selection based on sustainability criteria harms investor's returns, or in contrast it can be a driver of superior financial benefits. With this purpose, daily prices and returns of 4 traditional and 10 sustainable stock indexes are analyzed from 2001 to 2011 and in the peaks and downs of both bull and bear markets. One of the major results of this study is that sustainable indexes outperform traditional stock indexes in all the periods under analysis; however the differences on average returns are not statistically significant. Through unit root tests we acknowledge that returns are stationary and levels are nonstationary. The short-run relationship analysis based on Granger causality test reveals a feedback effect between traditional and sustainable stock indexes returns. In contrast, long-run relationship, based on cointegration analysis, points that most of the stock indexes are not cointegrated, suggesting that sustainable and traditional stock indexes do not have a long-run linkage and thus can diverge without bound.

Does Socially Responsible Investing Pay in Developing Countries? A Comparative Study Across Select Developed and Developing Markets

“…Further, conventional investors constantly underestimate the costs of externalities generated by such conventional/non-SRI companies while overestimating the costs of holding responsible companies relative to their benefits (Marsh, 2000). Sufficient literature exists indicating the SRI mutual fund portfolios as well as indices beating the markets during identified economic and market conditions, bolstering the assumption of ‘doing well while doing good’ (Collison et al, 2008; Curto & Vital, 2014; Hill et al, 2007; Hume & Larkin, 2008). The expected returns of SR stocks have been documented to be greater than those of conventional stocks, especially during the crisis period, encouraging higher money flows in the relatively secure and reliable investment funds (Parida & Wang, 2018; Paul, 2017; Nofsinger & Varma, 2014).…”

Institutional proxy voting in South Africa: Process, outcomes and impact

“…As companies are under continued pressure to improve their environmental, social and governance disclosure and performance (Ho, 2013;Kolk, 2008), inclusion in a responsible investment index is becoming more prevalent (Curto & Vital, 2014). Examples of prominent responsible investment indices in the global context include the Domini 400 Social Index, the FTSE4 Good Indices series and the Dow Jones Sustainability Indexes series.…”

Socially responsible investing: performance evaluation of BRICS nations

“…Finally, the third hypothesis builds on SRI outperforming conventional investments as investors underestimate the benefits of socially responsible investments relative to their costs (Marsh, 2000). Empirical studies have found SRI mutual fund portfolios as well as indices beating the markets during respective periods, reiterating incentive to the responsible investor (Hill et al, 2007;Hume and Larkin, 2008;Collison et al, 2008;Curto and Vital, 2014). Others found SRI screens earning abnormal positive returns during the crisis period, encouraging higher money flows in the relatively secure and reliable investment funds (Varma and Nofsinger, 2012;Paul, 2017;Parida and Wang, 2018).…”