The Cost of Being Good
30 Pages Posted: 3 Jan 2007
Date Written: January 3, 2007
This paper examines the performance of U.S. equities through the use of socially responsible investment screens. We extend the socially responsible investing literature by examining a broader study of social screens. We examine the returns and risk-adjusted returns to investing in socially responsible investment portfolios using twenty social screens from KLD. The approach introduces a simple model of asset returns based on a utility function that incorporates social goals. We also extend the socially responsible investment (SRI) research by examining the persistence in performance of SRI screens using Jensen's alpha and conditional alphas. We find that there is no cost to being good by investing according to SRI screens. Investors are no worse off investing in accordance with their social beliefs.
Keywords: Performance, socially responsible investment, conditional asset pricing
JEL Classification: G11,G12
Suggested Citation: Suggested Citation