Performance of Socially Responsible Portfolios Across Sectors in Indian Stock Market

Think India ◽  
2016 ◽  
Vol 19 (1) ◽  
pp. 01-09
Author(s):  
Vanita Tripathi ◽  
Varun Bhandari
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Factor Model ◽  
Sharpe Ratio ◽  
Market Model ◽  
Socially Responsible ◽  
Cross Sectional ◽  
Responsible Investing ◽  
Indian Stock Market ◽  
Three Factor

The question of whether socially responsible stocks outperform or under-perform general stocks has been of keen interest for various researchers and academicians. This paper seeks to empirically examine the performance of socially responsible portfolios across various sectors and index of socially responsible and general companies in Indian stock market. We have taken up S&P ESG and CNX NIFTY as the indices of socially responsible and general companies respectively. ESG index has been classified into six different sectors on the basis of GICS. Performance has been evaluated in terms of risk, return and various risk-adjusted measures like Sharpe ratio, Treynor ratio, Double Sharpe ratio, Modified Sharpe ratio, M2 measure, Jensens alpha, Famas decomposition measure, etc. We have also checked whether market model is sufficient to explain cross sectional variation in stock returns or we need Fama-French three factor model. The study period ranges from January 1996 – December 2013 and it is further divided into different sub-periods. We find that socially responsible stocks across IT, FMCG and financial sectors are well rewarding in Indian stock market by generating significantly higher returns and outperforming the two indices on the basis of risk-adjusted measures employed during 18 year period and different sub-periods. The results uphold even with the use of market model and Fama-French three factor model by generating highest significant excess returns. There is no empirical evidence on the performance evaluation of socially responsible portfolios across different sectors. Hence this study is first of its kind. This will help investors in selecting best sector for investment in socially responsible companies. Significant higher returns of ESG index and socially responsible stocks across different sectors make Socially Responsible Investing (SRI) a better investment vehicle for investors in India. This is the time when general companies should change their approach and agenda towards CSR and start considering ESG issues as their investment themes. The regulators, policy makers and mutual funds should come up with different socially responsible products and sectoral indices to initiate the movement of SRI across different sectors in India.

Performance of Socially Responsible Portfolios Across Sectors in Indian Stock Market

2016 ◽  
Vol 5 (1) ◽  
Author(s):  
Vanita Tripathi ◽  
Varun Bhandari
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Factor Model ◽  
Sharpe Ratio ◽  
Market Model ◽  
Socially Responsible ◽  
Cross Sectional ◽  
Responsible Investing ◽  
Indian Stock Market ◽  
Three Factor

The question of whether socially responsible stocks outperform or under-perform general stocks has been of keen interest for various researchers and academicians. This paper seeks to empirically examine the performance of socially responsible portfolios across various sectors and index of socially responsible and general companies in Indian stock market. We have taken up S&P ESG and CNX NIFTY as the indices of socially responsible and general companies respectively. ESG index has been classified into six different sectors on the basis of GICS. Performance has been evaluated in terms of risk, return and various risk-adjusted measures like Sharpe ratio, Treynor ratio, Double Sharpe ratio, Modified Sharpe ratio, M2 measure, Jensens alpha, Famas decomposition measure, etc. We have also checked whether market model is sufficient to explain cross sectional variation in stock returns or we need Fama-French three factor model. The study period ranges from January 1996 December 2013 and it is further divided into different sub-periods. We find that socially responsible stocks across IT, FMCG and financial sectors are well rewarding in Indian stock market by generating significantly higher returns and outperforming the two indices on the basis of risk-adjusted measures employed during 18 year period and different sub-periods. The results uphold even with the use of market model and Fama-French three factor model by generating highest significant excess returns. There is no empirical evidence on the performance evaluation of socially responsible portfolios across different sectors. Hence this study is first of its kind. This will help investors in selecting best sector for investment in socially responsible companies. Significant higher returns of ESG index and socially responsible stocks across different sectors make Socially Responsible Investing (SRI) a better investment vehicle for investors in India. This is the time when general companies should change their approach and agenda towards CSR and start considering ESG issues as their investment themes. The regulators, policy makers and mutual funds should come up with different socially responsible products and sectoral indices to initiate the movement of SRI across different sectors in India.

Performance of Socially Responsible Portfolios Do Economic Conditions Matter?

2015 ◽  
Vol 4 (1) ◽  
Author(s):  
Varun Bhandari ◽  
Vanita Tripathi
Keyword(s):  
Factor Model ◽  
Socially Responsible Investing ◽  
Sharpe Ratio ◽  
Economic Conditions ◽  
Socially Responsible ◽  
Cross Sectional ◽  
Responsible Investing ◽  
Market Portfolio ◽  
The Impact ◽  
Three Factor

In a first of its kind, this paper examines the performance of various socially responsible stocks portfolios as compared to general stocks portfolios and market portfolio using return and various risk-adjusted measures over the period January 1996 - December 2013 and over different business economic conditions. Besides the conventional risk-adjusted measures, we have also used modified Sharpe ratio, double Sharpe ratio, M2 measure, alpha based on three factor Fama-French model and Famas decomposition measure. Further we have checked for the impact of economic conditions (recession or boom) on the alpha and slope coefficients. We have also examined whether single factor CAPM is sufficient to explain cross sectional variations across portfolios or we need a multi-factor model (like Fama-French three factor model). We find that despite having higher risk, socially responsible stocks portfolios generated significantly higher returns and hence outperformed other portfolios on the basis of all risk-adjusted measures as well as net selectivity returns during both recession and boom periods. The results uphold even with the use of Fama-French three factor model for estimating excess returns. The empirical results, besides augmenting the existing literature on performance evaluation, clearly indicate that investors in India have become more socially conscious as the stock market is rewarding socially responsible companies well in terms of higher returns (on risk adjusted basis). The study supports the view that socially responsible investing is boon for investors in India. Therefore, regulators, policy makers and mutual funds should construct and make available various socially responsible investment products to initiate the movement of socially responsible investing in India.

Information risk, stock returns, and asset pricing: Evidence from China

2017 ◽  
Vol 30 (4) ◽  
pp. 379-394 ◽  
Author(s):  
Raheel Safdar ◽  
Chen Yan
Keyword(s):  
Stock Returns ◽  
Factor Model ◽  
Empirical Literature ◽  
Firm Level ◽  
Cross Sectional ◽  
Market Pricing ◽  
Content Type ◽  
Information Risk ◽  
Accruals Quality ◽  
Three Factor

Purpose This study aims to investigate information risk in relation to stock returns of a firm and whether information risk is priced in China. Design/methodology/approach The authors used accruals quality (AQ) as their measure of information risk and performed Fama-Macbeth regressions to investigate association of AQ with future realized stock returns. Moreover, two-stage cross-sectional regression analysis was performed, both at firm level and at portfolio level, to test if the AQ factor is priced in China in addition to existing factors in the Fama French three-factor model. Findings The authors found poor AQ being associated with higher future realized stock returns. Moreover, they found evidence of market pricing of AQ in addition to existing factors in the Fama French three-factor model. Further, subsample analysis revealed that investors value AQ more in non-state owned enterprises than in state owned enterprises. Research limitations/implications The study sample comprises A-shares only and the generalization of the findings is limited by the peculiar institutional and economic setup in China. Originality/value This study contributes to market-based accounting literature by providing further insight into how and if investors value information risk, and it seeks to fill gap in empirical literature by providing evidence from the Chinese capital market.

scholarly journals Performance and Resilience of Socially Responsible Investing (SRI) and Conventional Funds during Different Shocks in 2016: Evidence from Japan

2020 ◽  
Vol 12 (2) ◽  
pp. 540 ◽  
Author(s):  
Saiful Arefeen ◽  
Koji Shimada
Keyword(s):  
Event Study ◽  
Factor Model ◽  
Optimal Strategies ◽  
Socially Responsible Investing ◽  
Least Square ◽  
Market Model ◽  
Individual Investors ◽  
Socially Responsible ◽  
Volatility Risk ◽  
Responsible Investing

Socially responsible investing (SRI) reap the benefits of a social consensus and is often presented as a solution to conciliate finance and sustainable development. This article investigates the performance and resilience of both socially responsible and conventional funds listed in the Japan Investment Trust Association (JITA) during two economic shocks (the U.S. election and Brexit) in 2016. To see the immediate reaction in fund performance around different shocks, an event study with market model using ordinary least square (OLS), an event study with market model using exponential generalized autoregressive heteroscedasticity (EGARCH) and an event study with Fama–French multi-factor model was used to avoid common features of return data such as non-normality, heteroscedasticity, and cross-correlation. This study found that the recent U.S. election had a significant positive effect whereas the Brexit referendum event had a significant negative shock on fund returns in Japan around the event window. It is evident from the empirical findings that, compared to conventional funds, socially responsible funds were more resilient to uncertainty around the recent U.S. presidential election whereas conventional funds were more sensitive during the Brexit referendum. The important implications of these findings are the optimal strategies of institutional or individual investors who have direct or indirect exposure to the fund volatility risk in Japan.

The effect of business cycle, market return and momentum on financial performance of socially responsible investing mutual funds

2017 ◽  
Vol 13 (3) ◽  
pp. 513-528 ◽  
Author(s):  
Karen Paul
Keyword(s):  
Business Cycle ◽  
Financial Performance ◽  
Mutual Funds ◽  
Factor Model ◽  
Social Performance ◽  
Socially Responsible ◽  
Content Type ◽  
Responsible Investing ◽  
Market Return ◽  
Three Factor

Purpose This study examines the effect of business cycle, market return and momentum on the financial performance of socially responsible investing (SRI) mutual funds using data from two complete business cycles as defined by the National Bureau of Economic Research (NBER). Design/methodology/approach A “fund of funds” approach is used to identify the extent to which SRI financial performance is affected by the macroeconomic climate. The Fama-French Three-Factor model and the Carhart four-factor model are used to bring the results into alignment with commonly used finance methodologies. Findings The results indicate that SRI tends to preserve value during economic contraction more than it adds value during economic expansion. Market return is important during both expansion and contraction, while momentum is important only during expansion. Research limitations/implications These findings suggest that double screening, for both financial and social performance, enables portfolio managers of SRI funds to have insight into those companies that are particularly vulnerable during times of economic contraction. Practical implications These results bring added clarity to the mixed findings found by previous researchers examining the relationship between corporate social performance (CSP) and financial performance. Social implications This study reinforces the idea that the financial performance of companies with high ethical standards is comparable to the financial performance of the market as a whole during times of economic expansion and superior to the market as a whole during times of economic contraction. Originality/value Business cycle analysis, along with the Fama-French Three-Factor model and the Carhart four-factor model, brings SRI research more into the realm of conventional financial analysis than previous studies.

scholarly journals MULTIFACTOR ASSET PRICING ANALYSIS OF THE BALTIC STOCK MARKET

Ekonomika ◽  
2010 ◽  
Vol 89 (4) ◽  
pp. 85-95 ◽  
Author(s):  
Raimonds Lieksnis
Keyword(s):  
Asset Pricing ◽  
Stock Market ◽  
Factor Model ◽  
Stock Market Index ◽  
Cross Sectional ◽  
Economic Significance ◽  
Market Index ◽  
Fama And French ◽  
The Baltic ◽  
Three Factor

This study investigates whether the Fama–French three-factor asset pricing model is applicable for explaining cross-sectional returns of stocks listed in the Baltic stock exchanges. Findings confirm the validity and economic significance of the three-factor model for the Baltic stock market: only investors who chose to invest in value stocks during the reference period achieved positive returns by matching or beating the returns of the stock market index. The monthly returns of 8 Latvian, 13 Estonian and 27 Lithuanian company stocks are analyzed for the time period from June 2002 till February 2010 by the methodology presented in Davis, Fama, and French (2000). Cross-sectional multivariate regression is calculated with stock portfolios representing the book-to-market and capitalization of companies as independent variables along with the stock market index. The study concludes that these three factors in the three-factor model are statistically significant, but, in line with earlier studies, regression intercepts are significantly different from zero and the model is not statistically confirmed.p>

scholarly journals Previsibilidade de Retorno das Ações na Bovespa: Um Teste Envolvendo o Modelo de Fator de Retorno Esperado

2004 ◽  
Vol 2 (2) ◽  
pp. 183
Author(s):  
Luciano Martin Rostagno ◽  
Gilberto De Oliveira Kloeckner ◽  
João Luiz Becker
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Trading Volume ◽  
Factor Model ◽  
Explanatory Power ◽  
Return Predictability ◽  
Expected Return ◽  
Cross Sectional ◽  
Theoretical Assumptions ◽  
History Of

This paper examines the hypothesis of asst return predictability in the Brazilian Stock Market (Bovespa). Evidence suggests that seven factors explain most of the monthly differential returns of the stocks included in the sample. Within the factors that present statistically significant mean, two are liquidity factors (market capitalization and trading volume trend), three refer to price level of stocks (dividend to price, dividend to price trend, and cash flow to price), and two relate to price history of stocks (3 and 12 months excess return). Contradicting theoretical assumptions, risk factors present no explanatory power on cross-sectional returns. Using an expected return factor model, it is contended that stock returns are quite predictable. An investment simulation shows that the model is able to assemble portfolios with statistically significant higher returns. Additional tests indicate that the winner portfolios are not fundamentally riskier suggesting mispricing of assets in the Brazilian stock Market.

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