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Factor exposures and diversification: Are sustainably screened portfolios any different?

Arnaud Gougler () and Sebastian Utz ()
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Arnaud Gougler: University of Fribourg
Sebastian Utz: University St. Gallen

Financial Markets and Portfolio Management, 2020, vol. 34, issue 3, No 1, 249 pages

Abstract: Abstract We analyze the performance, risk, and diversification characteristics of global screened and best-in-class equity portfolios constructed according to Inrate’s sustainability ratings. The financial performance of sustainably high-rated portfolios is similar to the risk-adjusted market performance in terms of abnormal returns of a five-factor market model. In contrast, low-rated portfolios exhibit negative abnormal returns. Firms with high sustainability ratings show lower idiosyncratic risk and higher exposure toward the high-minus-low and the conservative-minus-aggressive factor.

Keywords: Sustainable portfolios; Portfolio diversification; ESG scores; Screening approaches; Idiosyncratic risk (search for similar items in EconPapers)
JEL-codes: G11 Q56 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s11408-020-00354-4

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