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, Ravi Bansal Fuqua School of Business, Duke University and NBER Search for other works by this author on: Oxford Academic Di (Andrew) Wu Stephen M. Ross School of Business, University of Michigan Send correspondence to Andrew Wu, andydiwu@umich.edu. Search for other works by this author on: Oxford Academic Amir Yaron Bank of Israel The Wharton School, University of Pennsylvania and NBER Search for other works by this author on: Oxford Academic
The Review of Financial Studies, Volume 35, Issue 4, April 2022, Pages 2067–2099, https://doi.org/10.1093/rfs/hhab072
Published:
18 June 2021
Article history
Received:
05 March 2018
Editorial decision:
30 January 2021
Published:
18 June 2021
Corrected and typeset:
05 August 2021
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Ravi Bansal, Di (Andrew) Wu, Amir Yaron, Socially Responsible Investing in Good and Bad Times, The Review of Financial Studies, Volume 35, Issue 4, April 2022, Pages 2067–2099, https://doi.org/10.1093/rfs/hhab072
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Abstract
We investigate the time variability of abnormal returns from socially responsible investing (SRI). Using portfolio regressions and event studies on multiple data sources, including analyst ratings, firm announcements, and realized incidents, we find that highly rated SRI stocks outperform lowly rated SRI stocks during good economic times, for example, periods with high market valuations or aggregate consumption, but underperform during bad times, such as recessions. This variation in abnormal returns of high-SR stocks vis-à-vis low SR stocks is consistent with a wealth-dependent investor preference for SR stocks that leads to an increased (decreased) demand for SRI during good (bad) times.
© The Author(s) 2021. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com.
This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/open_access/funder_policies/chorus/standard_publication_model)
JEL
G11 - Portfolio Choice; Investment Decisions G19 - Other G40 - General
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Editor: Francesca Cornelli
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As an expert in finance and investment, with a background in analyzing market trends and investment strategies, I can confidently dissect the content of the article you provided. Let's break down the key concepts mentioned:
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Socially Responsible Investing (SRI): This refers to an investment approach that considers not only financial returns but also the social and environmental impact of investments. Investors using SRI strategies often seek to support companies that align with their ethical values or contribute positively to society.
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Abnormal Returns: Abnormal returns are the returns on an investment that exceed or fall below what would be expected based on the risk of the investment or the market as a whole. In this context, the article discusses the time variability of abnormal returns from socially responsible investing.
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Portfolio Regressions and Event Studies: These are analytical methods used in finance to study the relationship between various factors and investment returns. Portfolio regressions involve analyzing the relationship between the returns of a portfolio and other variables, while event studies examine the impact of specific events on asset prices.
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Wealth-dependent Investor Preference: This concept suggests that the demand for socially responsible investments may vary depending on economic conditions and investor wealth. The article discusses how the preference for SRI stocks may increase during good economic times and decrease during bad times.
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Market Valuations and Aggregate Consumption: These are economic indicators that reflect the overall health of the economy. Market valuations refer to the assessed value of the stock market, while aggregate consumption measures the total spending by households on goods and services.
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JEL Classification Codes: These are standardized codes used by the Journal of Economic Literature (JEL) to classify articles based on their subject matter. The codes mentioned in the article include G11 (Portfolio Choice; Investment Decisions), G19 (Other), and G40 (General), indicating the broader field of finance and investment that the research falls under.
Overall, the article explores how the performance of socially responsible investments varies across different economic conditions, shedding light on the behavior of investors and the impact of market dynamics on SRI strategies. If you have any further questions or need clarification on any of these concepts, feel free to ask!
