The Opportunity Cost of Negative Screening in Socially Responsible Investing

Arjan Trinks and Bert Scholtens ()
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Bert Scholtens: University of Groningen

Journal of Business Ethics, 2017, vol. 140, issue 2, No 1, 193-208

Abstract: Abstract This paper investigates the impact of negative screening on the investment universe as well as on financial performance. We come up with a novel identification process and as such depart from mainstream socially responsible investing literature by concentrating on individual firms’ conduct and by studying a much wider range of issues. Firstly, we study the size and financial performance of fourteen potentially controversial issues: abortion, adult entertainment, alcohol, animal testing, contraceptives, controversial weapons, fur, gambling, genetic engineering, meat, nuclear power, pork, (embryonic) stem cells, and tobacco. We investigate an international sample of more than 1,600 stocks for more than twenty years. We then analyze the impact of applying negative screens to a market portfolio. Our findings suggest that the choice for negative screening strategies does matter for the size of the investment universe as well as for risk-adjusted return performance. Investing in controversial stocks in many cases results in additional risk-adjusted returns, whereas excluding them may reduce financial performance. These findings suggest that there are opportunity costs to negative screening.

Keywords: Controversial investments; Market capitalization; Responsible investing; Risk-adjusted returns; Screening (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (52)

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DOI: 10.1007/s10551-015-2684-3

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