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Title:The effect of socially responsible investing on portfolio performance PDF Logo
Authors:Kempf, Alexander
Osthoff, Peer
Issue Date:2007
Series/Report no.:CFR Working Paper 06-10
Abstract:More and more investors apply socially responsible screens when building their stock portfolios. This raises the question whether these investors can increase their performance by incorporating such screens into their investment process. To answer this question we implement a simple trading strategy based on socially responsible ratings from the KLD Research & Analytics: Buy stocks with high socially responsible ratings and sell stocks with low socially responsible ratings. We find that this strategy leads to high abnormal returns of up to 8.7% per year. The maximum abnormal returns are reached when investors employ the best-in-class screening approach, use a combination of several socially responsible screens at the same time, and restrict themselves to stocks with extreme socially responsible ratings. The abnormal returns remain significant even after taking into account reasonable transaction costs.
Subjects:Socially Responsible Investing
Portfolio Management
Trading Strategy
JEL:G11
G12
G20
G23
M14
Document Type:Working Paper
Appears in Collections:CFR Working Papers, Centre for Financial Research (CFR), Universität Köln

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