The effect of socially responsible investing on portfolio performance

Arbeitspapier

More and more investors apply socially responsible screens when building their stock portfolios. This raises the question whether these investors can increase their performance by incorporating such screens into their investment process. To answer this question we implement a simple trading strategy based on socially responsible ratings from the KLD Research & Analytics: Buy stocks with high socially responsible ratings and sell stocks with low socially responsible ratings. We find that this strategy leads to high abnormal returns of up to 8.7% per year. The maximum abnormal returns are reached when investors employ the best-in-class screening approach, use a combination of several socially responsible screens at the same time, and restrict themselves to stocks with extreme socially responsible ratings. The abnormal returns remain significant even after taking into account reasonable transaction costs.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CFR Working Paper ; No. 06-10

Classification and Topics

• Classification: Wirtschaft ; Portfolio Choice; Investment Decisions ; Asset Pricing; Trading Volume; Bond Interest Rates ; Financial Institutions and Services: General ; Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors ; Corporate Culture; Diversity; Social Responsibility
• Subject: Socially Responsible Investing ; Portfolio Management ; Trading Strategy

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kempf, Alexander ; Osthoff, Peer
• Event: Veröffentlichung
• (who): University of Cologne, Centre for Financial Research (CFR)
• (where): Cologne
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/57725
• Last update: 10.03.2025, 11:46 AM CET