Sustainable stock indices and long-term portfolio decisions

Robert Bianchi and Michael Drew

Journal of Sustainable Finance & Investment, 2012, vol. 2, issue 3-4, 303-317

Abstract: What is the long-term behaviour of sustainable stock index returns and the accretive benefits to portfolio diversification? We consider these issues through the prism of a long-term investor by replicating the risk and reward behaviour of sustainable stock indices from 1927 through 2010. We find that these indices exhibit long-term mean, variance and tail-risk characteristics that are commensurate with conventional U.S. stocks. We also reveal that recent performance appears worse than their performance over the long term. On the question of portfolio diversification, we find that only one of the three sustainable stock indices investigated dominates the efficient frontier. Our findings suggest that the stock screening process of these indices has important implications regarding the desirability of these investments for long-term investors.

Date: 2012
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DOI: 10.1080/20430795.2012.715577

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