Does it pay to be ethical? Evidence from the FTSE4Good

Article


Belghitar, Y., Clark, E. and Deshmukh, N. 2014. Does it pay to be ethical? Evidence from the FTSE4Good. Journal of Banking and Finance. 47, pp. 54-62. https://doi.org/10.1016/j.jbankfin.2014.06.027
TypeArticle
TitleDoes it pay to be ethical? Evidence from the FTSE4Good
AuthorsBelghitar, Y., Clark, E. and Deshmukh, N.
Abstract

The empirical mean-variance evidence comparing the performance of socially responsible investments (SRI) and conventional investments suggests that there is no significant difference between the two. This paper re-examines the problem in the context of Marginal Conditional Stochastic Dominance (MCSD), which can accommodate any return distribution or concave utility function. Our results provide strong evidence that there is a financial price to be paid for socially responsible investing. Indices composed of socially responsible firms are MCSD dominated by trademarked indices composed of conventional firms as well as by indices carefully matched by size and industry with the firms in the SRI indices. Zero cost portfolios created by shorting the SRI index and using the proceeds to invest in the conventional index generate higher average returns, lower variance and higher skewness than either of the two indices standing alone. They also MCSD dominate the SRI and conventional indices standing alone.

KeywordsSocially Responsible Investments, SRI, Marginal Conditional Stochastic Dominance.
LanguageEnglish
PublisherElsevier
JournalJournal of Banking and Finance
ISSN0378-4266
Publication dates
Online08 Jul 2014
Print01 Oct 2014
Publication process dates
Deposited28 Apr 2015
Accepted29 Jun 2014
Output statusPublished
Publisher's version
Accepted author manuscript
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Copyright Statement

Under a Creative Commons license
© 2014 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/3.0/).

Digital Object Identifier (DOI)https://doi.org/10.1016/j.jbankfin.2014.06.027
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