Managi, Shunsuke and Okimoto, Tatsuyoshi and Matsuda, Akimi (2012): Do Socially Responsible Investment Indexes Outperform Conventional Indexes?
Download (523kB) | Preview
The question of whether more socially responsible (SR) firms outperform or underperform other conventional firms has been debated in the economic literature. In this study, using the socially responsible investment (SRI) indexes and conventional stock indexes in the US, the UK, and Japan, first and second moments of firm performance distributions are estimated based on the Markov switching model. We find two distinct regimes (bear and bull) in the SRI markets as well as the stock markets for all three countries. These regimes occur with the same timing in both types of market. No statistical difference in means and volatilities generated from the SRI indexes and conventional indexes in either region was found. Furthermore, we find strong comovements between the two indexes in both regimes.
|Item Type:||MPRA Paper|
|Original Title:||Do Socially Responsible Investment Indexes Outperform Conventional Indexes?|
|Keywords:||Socially responsible investments; Markov switching model; Maximum likelihood estimations; Return and volatilities; Bear and bull market|
|Subjects:||Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q0 - General > Q00 - General
G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets
Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q56 - Environment and Development ; Environment and Trade ; Sustainability ; Environmental Accounts and Accounting ; Environmental Equity ; Population Growth
|Depositing User:||Shunsuke MANAGI|
|Date Deposited:||15. Feb 2012 15:45|
|Last Modified:||12. Feb 2013 08:03|
Allen, F., Carletti, E., Marquez, R. (2009). “Stakeholder Capitalism, Corporate Governance and Firm Value.” Working Paper 09-28, Wharton Financial Institutions Center, University of Pennsylvania, Philadelphia, PA.
Ang, A., and G. Bekaert (2002). “International Asset Allocation with Regime Shifts.” Review of Financial Studies, 15: 1137–1187.
Bauer, R., Koedijk, K., Otten, R. (2005). “International Evidence on Ethical Mutual Fund Performance and Investment Style.” Journal of Banking and Finance 29: 1751–1767.
Baumol, W. (1991). “Perfect Markets and Easy Virtue: Business Ethics and the Invisible Hand,” Basil Blackwell, Oxford.
Becchetti, L. and Ciciretti, R. (2009). “Corporate social responsibility and stock market performance,” Applied Financial Economics 19 (16):1283-1293.
Benson, K.L. and Humphrey, J.E. (2008). "Socially Responsible Investment Funds: Investor Reaction to Current and Past Returns," Journal of Banking and Finance, 32, 9: 1850-1859.
Dow Jones (2008). “Dow Jones Sustainability World Indices Guide, version 9.1,” A Cooperation of Dow Jones Indexes, STOXX Limited and SAM Group, New York.
European Sustainable and Responsible Investment Forum (Eurosif). (2008). “Socially Responsible Investment Among European Institutional Investors.” European Sustainable and Responsible Investment Forum, Paris, France.
Filbeck, G, Gorman R, and Zhao, X. (2008). "The "Best Corporate Citizens:" Are They Good for Their Shareholders? " Financial Review 44. 239-262.
Fisman, R., Heal, G., Nair, V. (2006). “A Model of Corporate Philanthropy.” Working Paper, Wharton School, University of Pennsylvania, Philadelphia, PA.
FTSE (2005). “Ground Rules for the Management of the FTSE4Good Index Series, Version 1.3,” Secretary to the FTSE4Good Policy Committee, FTSE Group, New York.
FTSE (2006). “FTSE4Good Index Series, Inclusion Criteria,” FTSE Group, New York.
Galema, R., Plantinga, A. and Scholtens, L.J.R. (2008). “The Stocks at Stake: Return and Risk in Socially Responsible Investment.” Journal of Banking and Finance 32, 12: 2646-2654.
Gompers, P., Ishii, J., Metrick, A. (2003). “Corporate Governance and Equity Prices.” Quarterly Journal of Economics 118 (1): 107–155.
Guidolin, M. and Hyde, S.( 2009) “What tames the Celtic Tiger? Portfolio implications from a Multivariate Markov Switching model.” Applied Financial Economics 19 (6): 463-488.
Guidolin, M. and A. Timmermann. (2005). “Economic Implications of Bull and Bear Regimes in UK Stock and Bond Returns.” Economic Journal 115: 111-143.
Hamilton, J. D. (1989). “A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle.” Econometrica, 57: 357–384.
Hamilton, J.T. (1995). “Pollution as News: Media and Stock Market Reactions to the Toxics Release Inventory Data.” Journal of Environmental Economics and Management 28: 98–113.
Hibiki, A., and S. Managi (2010). “Environmental Information Provision, Market Valuation and Firm Incentives: Empirical Study of Japanese PRTRs.” Land Economics 86 (2): 382-392.
Huang, J., K.D. Wei, and H. Yan. (2007). “Participation Costs and the Sensitivity of Fund Flows to Past Performance.” Journal of Finance 62, 1273-1311.
Kempf, A., Osthoff, P. (2007). “The Effect of Socially Responsible Investing on Portfolio Performance.” European Financial Management. 908-922.
Kempf, A., Osthoff, P. (2008). “SRI Funds: Nomen est Omen.” Journal of Business Finance and Accounting 35, 9-10: 1276-1294.
Khanna, M., R. H. Quimio and D. Bojilova (1998). “Toxics Release Information: A Policy Tool for Environmental Protection.” Journal of Environmental Economics and Management 36: 243–266.
Konar, S., and M.A. Cohen (1997). “Information as Regulation: The Effect of Community Right to Know Laws on Toxic Emissions.” Journal of Environmental Economics and Management 32: 109–124.
Konar, S., and M.A. Cohen (2001). “Does the Market Value Environmental Performance?” Review of Economics and Statistics 83: 281–289.
Kumar, S., Managi, S. and A. Matsuda, S. 2012. "Stock Prices of Clean Energy Firms, Oil and Carbon Markets: A Vector Autoregressive Analysis" Energy Economics 34 (1): 215–226.
Labatt, S. and R.R. White (2002). Environmental Finance A Guide to Environmental Risk Assessment and Financial Products, Wiley Finance Editions, Cambridge.
Lee, D. Faff, R. and Langfield-Smith, K. (2009). “Revisiting the Vexing Question: Does Superior Corporate Social Performance Lead to Improved Financial Performance?”, Australian Journal of Management 34: 21-49.
MacKinlay, A.C. (1997). “Event Studies in Economics and Finance.” Journal of Economic Literature 35 (1): 13–39.
Maignan, I., B. Hillebrand, and D. McAlister (2002). “Managing Socially-Responsible Buying: How to Integrate Non-Economic Criteria into the Purchasing Process”,. European Management Journal, 20 (6): 641-648.
Maheu, J.M. and T.H. McCurdy (2000). “Identifying Bull and Bear Markets in Stock Returns.” Journal of Business and Economic Statistics 18 (1): 100-112.
Managi, S. 2011. "Technology, Natural Resources and Economic Growth: Improving the Environment for a Greener Future." Edward Elgar Publishing Ltd, Cheltenham, UK.
Managi, S., and T. Okimoto, and A. Matsuda. 2012. “Do Socially Responsible Investment Indexes Outperform Conventional Indexes?, Applied Financial Economics (forthcoming (ID: 665593 DOI:10.1080/09603107.2012.665593))
McWilliams, A.C., D. Siegel, and P. Wright (2006). “Corporate Social Responsibility: Strategic Implications,” Journal of Management Studies 43(1): 1-18.
Morningstar (2003). “Morningstar Socially Responsible Investment Index, Rule Book Version 1.00” Morningstar, Tokyo.
Nakajima, K. (2011) “Socially Responsible Firms and Stock Returns: Evidence from Japanese Constituents in FTSE4 Good Index”, Draft, Nikko Financial Intelligence, Inc.
Okimoto, T. (2008). “New Evidence of Asymmetric Dependence Structures in International Equity Markets,” Journal of Financial and Quantitative Analysis 43(3): 787-816.
Renneboog, L., J. ter Horst, and C. Zhang (2008a). “Socially Responsible Investments: Institutional Aspects, Performance, and Investor Behavior,” Journal of Banking and Finance 32, 9: 1723–1742.
Renneboog, L., J. ter Horst, and C. Zhang (2008b). “The Price of Ethics and Stakeholder Governance: The performance of Socially Responsible Mutual Funds,” Journal of Corporate Finance, 14, 3: 302-322.
Sauer, D. (1997). “The Impact of Social-Responsibility Screens on Investment Performance: Evidence from the Domini 400 Social Index and Domini Equity Fund”, Review of Financial Economics 6: 23-35.
Social Investment Forum (SIF). (2001, 2003, 2007). “Report on Responsible Investing Trends in the US,” SIF, Washington, DC.
Social Investment Forum-Japan (2008). “Socially Responsible Investment in Japan,” Tokyo.
Statman, M. (2000). “Socially Responsible Indexes”, Journal of Portfolio Management 32: 100-108.
Tirole, J. (2001). “Corporate governance,” Econometrica 69, 1–35.
Vidovic, M., and N. Khanna. (2007). “Can Voluntary Pollution Prevention Programs Fulfill Their Promises? Further Evidence from the EPA's 33/50 Program,” Journal of Environmental Economics and Management 53: 180-195.