The Asymmetry in Responsible Investing Preferences and Beliefs

Abstract

Empirical stylized facts in the literature concerning “sin” versus “angel” stocks display asymmetry. Through an experiment, we examine whether such biases can be micro- founded via individuals’ preferences and belief formations. We find that negative environmental and social externalities have thrice the impact of positive externalities on investment choices. Further, negative externalities modestly increase pessimism about investment prospects while positive externalities have no discernible impact. The asymmetry is pervasive, heterogeneous, and comparable to the magnitude observed in loss-aversion. Beyond rationalizing stylized empirical facts, our findings should help direct the growing theoretical literature that models the implications of non-pecuniary individual investor behavior.

Keywords: Social Preferences, Responsible Investment (RI), Social Responsible Investment (SRI)

JEL Classification: G11, G41, C91