Socially responsible investing and stock performance: New empirical evidence for the US and European stock markets

This paper empirically examines the theoretically ambivalent relationship between socially responsible investing (SRI) and stock performance. It contributes to the existing literature by considering both the US and the entire European stock markets and by using consistent world-wide corporate sustainability performance data. Our portfolio analysis from 1998 to 2009 is based on the common four-factor model according to Carhart (1997), which comprises market return, size, value, and momentum factors. We show for the US and the European stock markets that SRI is associated with large-sized firms. The insignificant abnormal stock returns for SRI in both regions are the main result of our paper. Therefore, our study supports the view that SRI stocks are correctly priced by market participants, although we cannot rule out that a corresponding mispricing has existed before the beginning of our observation period in 1998. DOI: https://doi.org/10.1016/j.rfe.2014.08.003 Posted at the Zurich Open Repository and Archive, University of Zurich ZORA URL: https://doi.org/10.5167/uzh-100678 Originally published at: Mollet, Janick Christian; Ziegler, Andreas (2014). Socially responsible investing and stock performance: New empirical evidence for the US and European stock markets. Review of Financial Economics, 23(4):208-216. DOI: https://doi.org/10.1016/j.rfe.2014.08.003 Socially Responsible Investing and Stock Performance: New Empirical Evidence for the US and European Stock Markets Janick Christian Mollet? ‡ and Andreas Ziegler§ ? ‡ Center for Corporate Responsibility and Sustainability (CCRS), UZH ‡Center of Economic Research (CER), ETH Zurich §University of Kassel Abstract This paper empirically examines the theoretically ambivalent relationship between socially responsible investing (SRI) and stock performance. It contributes to the existing literature by considering both the US and the entire European stock markets and by using consistent world-wide corporate sustainability performance data. Our portfolio analysis from 1998 to 2009 is based on the common four-factor model according to Carhart (1997), which comprises market return, size, value, and momentum factors. We show for the US and the European stock markets that SRI is associated with large-sized firms. The main result of our paper are the insignificant abnormal stock returns for SRI in both regions. Therefore, our study supports the view that SRI stocks are correctly priced by market participants, although we cannot rule out that a corresponding mispricing has existed before the beginning of our observation period in 1998.This paper empirically examines the theoretically ambivalent relationship between socially responsible investing (SRI) and stock performance. It contributes to the existing literature by considering both the US and the entire European stock markets and by using consistent world-wide corporate sustainability performance data. Our portfolio analysis from 1998 to 2009 is based on the common four-factor model according to Carhart (1997), which comprises market return, size, value, and momentum factors. We show for the US and the European stock markets that SRI is associated with large-sized firms. The main result of our paper are the insignificant abnormal stock returns for SRI in both regions. Therefore, our study supports the view that SRI stocks are correctly priced by market participants, although we cannot rule out that a corresponding mispricing has existed before the beginning of our observation period in 1998.