Performance Evaluation of Socially Responsible Stocks Portfolios across Sectors during Different Economic Conditions
Journal of Management Research, Vol. 16, No. 02, pp. 87-105, June 2016
20 Pages Posted: 27 Mar 2017
Date Written: June 23, 2016
This paper examines the performance of socially responsible companies in different sectors along with general companies using return and various risk-adjusted measures over the period January 1996–December 2013 and over different business economic conditions. Besides the conventional techniques, we have used modified Sharpe ratio, double Sharpe ratio, M2 measure, three factor alpha using FamaFrench model and Fama’s decomposition measure. We have also checked whether market model is sufficient to explain cross sectional variations across portfolios or we need a three factor model. We find that IT and FMCG sector portfolios are well rewarding during different boom and recession periods respectively by generating significantly higher returns and outperforming general companies in terms of risk-adjusted measures. We also find that irrespective of economic condition, socially responsible companies are performing well in Indian stock market by producing significant abnormal returns. Thus, our results clearly corroborate this fact that SRI in India should be considered as a mainstream form of investing by investors and portfolio managers. The study supports the view that significant higher returns of socially responsible companies than general companies make SRI a better investment vehicle for investment in India. Therefore, general companies should imbibe the spirit of social responsibility and start considering ESG issues as their investment themes.
Keywords: Socially Responsible Investing, ESG Index, Fama's Decomposition Measure, Market Model, Fama-French Three Factor Model
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