Does it Really Hurt to be Responsible?

Jacquelyn E. Humphrey, David T. Tan

    Research output: Contribution to journalArticlepeer-review

    62 Citations (Scopus)

    Abstract

    Prior literature on socially responsible investment has contended that excluding "sin stocks" from a portfolio (negative screening) will reduce performance and increase risk. Further, incorporating stocks of firms with positive social responsibility scores (positive screening) will improve performance and reduce risk. We simulate portfolios designed to mimic typical equity mutual funds' holdings and investigate these propositions. We remove the potentially confounding influences of differences in manager skill, transaction costs and fees, and conduct a clean experiment on the effect of positive and negative portfolio screening. We find no difference in the return or risk of screened and unscreened portfolios. We conclude that a typical socially responsible fund will neither gain nor lose from screening its portfolio.

    Original languageEnglish
    Pages (from-to)375-386
    Number of pages12
    JournalJournal of Business Ethics
    Volume122
    Issue number3
    DOIs
    Publication statusPublished - Jun 2014

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