Measuring the Under-Diversification of Socially Responsible Investments

Posted: 31 Oct 2016 Last revised: 17 May 2017

See all articles by Fabio Pizzutilo

Fabio Pizzutilo

Università degli Studi di Bari “Aldo Moro”

Date Written: October 30, 2016

Abstract

This article proposes a straightforward measure of the residual unsystematic risk that a selective portfolio investment strategy, such as socially responsible investment, eventually bears. The model is empirically employed in order to analyse whether the MSCI socially responsible indices bear significant levels of volatility that could be diversified by not imposing social screenings to the set of eligible investments. The study finds that a low but not negligible part of the volatility of the returns could be diversified by not restricting the investment to socially responsible companies. Implications for the socially responsible investing industry and socially responsible investors are discussed.

Keywords: socially responsible investing; SRI; environmental social governance; portfolio diversification; unsystematic risk; idiosyncratic risk

JEL Classification: G11; M14

Suggested Citation

Pizzutilo, Fabio, Measuring the Under-Diversification of Socially Responsible Investments (October 30, 2016). Applied Economics Letters, 24(14), pp. 1005-1018, 2017, Available at SSRN: https://ssrn.com/abstract=2861520

Fabio Pizzutilo (Contact Author)

Università degli Studi di Bari “Aldo Moro” ( email )

largo Abbazia S. Scolastica, 53
Bari, 70124
Italy

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