Catalyzing Social Responsibility in Companies by Indian Stock Market
FIIB Business Review, Vol. 04, No. 01, pp. 3-13, 2015
11 Pages Posted: 16 Nov 2015
Date Written: November 16, 2015
This paper examines whether the companies that are socially responsible are performing better than general companies in Indian stock market in terms of price discovery, return, risk and various risk-adjusted measures during different structural break periods (i.e. pre-crisis, crisis and post-crisis). The study has used semi-log regression model to estimate the growth of socially responsible and general indices, log returns, systematic and unsystematic risk, various risk-adjusted measures like Sharpe ratio, Treynor ratio, M2, Jensen's alpha and Information ratio to evaluate the performance. The findings support the view that socially responsible investing (SRI) is a boon for Indian investors during crisis period. We find that growth rate of socially responsible index is significantly better than general index during crisis period. Despite having higher risk, socially responsible index generated significantly higher return than general index and hence outperformed all other indices on the basis of all risk-adjusted measures employed during crisis period. Thus, SRI could be used as a safer bet by Indian investors. Since the securities of socially responsible companies are performing well during crisis period, there is distinct possibility of investors to change their attitude towards SRI and put more faith on socially responsible companies.
Keywords: Socially Responsible Investing, ESG Index, Semi-Log Regression, Structural Break, Crisis, Risk-Adjusted Measures
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