Corporate Social Responsibility and Stock Market Performance

Abstract

We analyze the performance of a large sample of SR stocks relative to a control sample of equivalent size for 14 years. We find that individual SR stocks have on average significantly lower returns and unconditional variance than control sample stocks when controlling for industry effects. This result is paralleled by descriptive evidence on the lower (daily return) mean and variance of the buy-and-hold strategies on the SR portfolio with respect to those on the control portfolio. Beyond this first evidence we discover that: i) individual SR stocks are significantly less risky when controlling for conditional heteroskedasticity; ii) there are no significant differences in risk adjusted returns between the two buy and hold strategies on (SR and control sample) portfolios; iii) the buy-and-hold strategies on the SR portfolio exhibits significantly lower exposition to systematic nondiversifiable risk. These last findings are robust to different - market model, GARCH(1,1), APARCH(1,1) - model specifications.

Keywords: Corporate Social Responsibility, Conditional Volatility, Portfolio Choice

JEL Classification: G12, D21, L21