DEA Portfolio Modeling - The Case of Socially Responsible Investing
28 Pages Posted: 22 Aug 2016 Last revised: 24 Jan 2018
Date Written: January 23, 2018
In this paper, we expand the literature on multi-criteria portfolio modeling for social responsible investments using multi-directional efficiency analysis (MEA). We apply a positive screening according to MEA efficiency scores, but also exploit the information contained in the efficiency score directly (efficiency-weighting) in order to compute portfolio weights. The broad empirical analysis is based on public equity market data of social responsible investments from the USA going back to 2005. We find that a consideration of a social variable in the MEA improves financial and social performance. The efficiency-weighted portfolios yield superior financial performance compared to the other proposed models. A combination of positive screening and efficiency-weighting leads to the best social performance of all tested models. Overall, all models outperform a normal mean-variance portfolio and also do considerably well compared to the implemented benchmarks in general.
Keywords: Socially Responsible Investments, Portfolio Optimization, International Financial Markets
JEL Classification: G11, G15, A13
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