The cost of sustainability on optimal portfolio choices

Stefano Herzel, Marco Nicolosi and Catalin Starica ()

No 84/2011, Quaderni del Dipartimento di Economia, Finanza e Statistica from Università di Perugia, Dipartimento Economia

Abstract: We examine the impact of including sustainability related constraints on optimal portfolio selection. Our analysis covers an investment set containing the components of the S&P500 index from 1993 to 2008. The optimizations are performed according to the classical mean-variance approach while sustainability constraints are introduced by eliminating from the investment pool those assets that do not comply to given social responsibility criteria (screening). We compare the efficient frontiers with and without screening. The analysis is performed on the three main dimensions of sustainability, namely Environmental, Social and Governance. We find that socially responsible screening implies a small loss in terms of Sharpe Ratio even though it has a strong impact on the market capitalization of the optimal port-folio. The spanning test shows that the ex-post differences between the two frontiers, when short selling is not allowed, are significant only in the case of Environmental screening

Keywords: Socially responsible investments; optimal portfolios; screening. (search for similar items in EconPapers)
JEL-codes: G10 G11 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2011-02-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: The cost of sustainability in optimal portfolio decisions (2012)
Working Paper: The cost of sustainability on optimal portfolio choices (2010)
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