Is Socially Responsible Investing A Luxury Good?

37 Pages Posted: 25 Oct 2018

See all articles by Ravi Bansal

Ravi Bansal

Duke University and NBER

Di (Andrew) Wu

University of Michigan, Stephen M. Ross School of Business

Amir Yaron

University of Pennsylvania -- Wharton School of Business; National Bureau of Economic Research (NBER)

Date Written: February 10, 2018

Abstract

We investigate the time variability of abnormal returns from socially responsible investing (SRI) utilizing firm-level data on corporate social responsibility ratings. While firms with high ratings have marginally higher average alphas than those with low ratings, these alphas are time varying, with high-ranked stocks significantly outperforming low-ranked ones during good economic times, but significantly underperforming them during bad economic times. In addition, reductions in firms' social responsibility ratings lead to temporarily lower abnormal returns --- a feature more pronounced during good economic times. Furthermore, we document that after individual firm's positive CSR related press announcement, abnormal returns are significantly positive during good times while mildly negative if the announcement happens during bad times. In totality, the findings are consistent with time-varying, wealth-dependent preferences toward SRI, which result in more responsible stocks behaving akin to luxury goods. This interpretation is further enhanced by the fact that the alpha difference is significantly correlated with both luxury consumption from NIPA and the sales growth of luxury-good retailers.

Suggested Citation

Bansal, Ravi and Wu, Di and Yaron, Amir, Is Socially Responsible Investing A Luxury Good? (February 10, 2018). Available at SSRN: https://ssrn.com/abstract=3259209 or http://dx.doi.org/10.2139/ssrn.3259209

Ravi Bansal

Duke University and NBER ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7758 (Phone)
919-660-8038 (Fax)

Di Wu (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Amir Yaron

University of Pennsylvania -- Wharton School of Business ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-898-1241 (Phone)
215-898-6200 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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