Efficiency of Socially Responsible Investments in the Context of Portfolio Management

33 Pages Posted: 22 Feb 2022

See all articles by Karl Weinmayer

Karl Weinmayer

Modul University Vienna - Department of International Management; Vienna University of Economics and Business - Institute for Finance, Banking and Insurance

Margarethe Rammerstorfer

Vienna University of Economics and Business - Department of Corporate Finance

Abstract

In this paper, we expand the literature on multi-criteria portfolio modeling for socially responsible investments using multi-directional efficiency analysis (MEA). We apply a positive screening based on MEA efficiency scores, and also directly exploit the information contained in the efficiency score in order to compute portfolio weights. We conduct a broad empirical analysis testing multiple portfolio strategies based on public equity market data of socially responsible investments from the US and Europe going back to 2005. We show that the explicit consideration of a social responsibility variable in the MEA portfolio models has a positive effect on the financial and social performance of all asset allocations strategies. Furthermore, we find that portfolios constructed using the proposed efficiency analysis in their asset allocation outperform the strategies which merely employ a positive efficiency  screening. These portfolios also provide superior results compared to a naive or value-weighted strategy with respect to either the financial or social performance, implying a small tradeoff depending on the considered region, and outperform a mean-variance strategy in both the financial and social dimension. These results clearly outline the benefits of MEA portfolio modeling, not only for socially responsible investors, but also traditional investors.

Keywords: Portfolio Optimization, Socially Responsible Investments, Efficiency Analysis, International Financial Markets, Multi-directional Efficiency Analysis, Sustainable Finance, ESG

Suggested Citation

Weinmayer, Karl and Rammerstorfer, Margarethe, Efficiency of Socially Responsible Investments in the Context of Portfolio Management. Available at SSRN: https://ssrn.com/abstract=4039593 or http://dx.doi.org/10.2139/ssrn.4039593

Karl Weinmayer (Contact Author)

Modul University Vienna - Department of International Management ( email )

Am Kahlenberg 1
Vienna, 1190
Austria
+43-1-3203555-653 (Phone)

Vienna University of Economics and Business - Institute for Finance, Banking and Insurance ( email )

Welthandelsplatz 1
Building D4, 4th floor
Vienna, 1020
Austria

Margarethe Rammerstorfer

Vienna University of Economics and Business - Department of Corporate Finance ( email )

Welthandelsplatz 1
1020 Vienna
Austria

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