Socially Responsible Investments

Abstract:     
What do we know about socially responsible investments? What distinguishes socially responsible companies from conventional companies? Should investors expect socially responsible investments to yield higher or lower returns than conventional investments? What has been the performance of socially responsible portfolios relative to conventional portfolios? What are the tracking errors of socially responsible portfolios and what can investors do to reduce them? In this article I answer questions about socially responsible investments.

Many financial advisors perceive socially responsible portfolios as undiversified portfolios whose performance is sure to trail that of conventional portfolios. But reality is different from perception. Financial advisors can construct for their investors portfolios that perform as well as conventional portfolios, or even better, whether through mutual funds or separate accounts.

Number of Pages in PDF File: 52

Keywords: socially responsible investing, behavioral finance, investor behavior, asset pricing model, market efficiency, portfolios

JEL Classification: G11, G12, G14, G23, G24

working papers series