Optimal responsible investment

Pernille Jessen

Applied Financial Economics, 2012, vol. 22, issue 21, 1827-1840

Abstract: The article examines responsible investment portfolio allocation. The analysis defines an investor-specific measure of portfolio responsibility and incorporates this measure into two different conventional investment approaches. First, investor utility theory describes preferences for portfolio responsibility. The utility setup is intuitive; however, any implementation would require information on investor trade-offs between portfolio risk, expected return and responsibility. Second, mean-variance analysis captures portfolio responsibility with an additional restriction on the investment problem. This approach yields analytical solutions for the optimal responsible investment problem and provides a sensitivity analysis of the required portfolio responsibility. An example concerning index investment corroborates the results.

Date: 2012
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DOI: 10.1080/09603107.2012.684786

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