Creating More Stable and Diversified Socially Responsible Investment Portfolios

ICMA Centre Discussion Paper Series: ICM-2015-03

37 Pages Posted: 27 Jan 2015

See all articles by Ioannis Oikonomou

Ioannis Oikonomou

University of Reading - ICMA Centre

Emmanouil Platanakis

University of Bath - School of Management

Charles Sutcliffe

University of Reading - ICMA Centre

Date Written: January 26, 2015

Abstract

This study is the first to apply a robust estimation technique when constructing Socially Responsible Investing (SRI) portfolios and to highlight that the selection of the optimization process in this industry matters. We go beyond the mean-variance Markowitz framework in order to bypass issues surrounding the significant estimation risk that causes unstable, poorly diversified and suboptimal portfolios. Using data from MSCI KLD on the social responsibility of US firms, we construct SRI portfolios which exhibit higher risk-adjusted performance, lower total risk, greater stability and diversification compared to conventional and SRI equity indexes, as well as more naïve forms of optimization. Our main conclusions are robust to a series of tests, including the use of different estimation windows, stricter screening criteria, and alternative ways of evaluating portfolio performance.

Keywords: corporate social responsibility, CSR, CSP, sustainability, robust estimation

JEL Classification: C61, G11, M14

Suggested Citation

Oikonomou, Ioannis and Platanakis, Emmanouil and Sutcliffe, Charles M., Creating More Stable and Diversified Socially Responsible Investment Portfolios (January 26, 2015). ICMA Centre Discussion Paper Series: ICM-2015-03. Available at SSRN: https://ssrn.com/abstract=2555609 or http://dx.doi.org/10.2139/ssrn.2555609

Ioannis Oikonomou (Contact Author)

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

Emmanouil Platanakis

University of Bath - School of Management ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

Charles M. Sutcliffe

University of Reading - ICMA Centre ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom

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