PORTFOLIO MANAGEMENT – SRI
An ongoing debate in the economic literature is if portfolios of companies with a high CSR rating outperform conventional portfolios. An argument for why this should be the case is that companies with high CSR rating are companies that provide quality products, i.e. CRS is seen as a signal of a firm¿s trustworthiness in providing quality products (see e.g. Managi et al (2012) and references in here). Another argument in favor of SRI investing is that employees of socially responsible companies perform better than their peers in less social responsible companies, making investors more willing to invest in CSR portfolios (see e.g. Sun, Yun, 2015). Hence, in the long run, portfolios based on companies with high CSR rating are expected to outperform conventional portfolios. On the other hand, imposing CSR-screening restrict the investment universe, and hence one would expect conventional portfolios to outperform portfolios with companies with high CSR ratings. Using the latest screening standards for CSR we want to investigate if we can design a portfolio that outperforms a conventional portfolio. That is, can an investor make moral correct investments and still make money? Secondly, we want to test if an investor, on the other hand, can make immoral investments and make even more money on that. The latter is based on the paper by Hong and Kacperczyk (2009) who shows that sin stocks (i.e. publicly traded companies involved in producing alcohol, tobacco, and gaming) outperforms their comparables. Thus, our overall research question is whether it pays out the most to be a moral or an immoral investor.
Possible data sources: CSRP/Compustat, Bloomberg, DataStream, Wharton Research Data Services, MSCI ESG database (VA), sustainability/annual reports
We have already started our work and we got a feedback from the supervisor
A draft structure should something like:
-Problem statement + Research question
-structure of the thesis
2) Corporate Social responsibility and Socially Responsible Investments (I guess as an introduction part)
2-3) Literature review and theoretical foundation (I am very inexperienced and I don’t know how to structure the thesis very well)
4) Data and Methodology
5) Empirical Analysis
That’s our feedback more or less from the supervisor
I will send you our current work but it has several deficiencies, like a wrong structure, unnecessary parts, we haven’t developed the model etc. and mistakes in the dataset
What we want to do is an analysis for the European market of the profitability of the top and low ESG rated portfolios. We have only one hypothesis but we want to develop 2 more. For example, an analysis of individual industries could be one more hypothesis or you can include another market area like the US for example. Of course all the literature review and the theory should build on the hypothesis.
Lastly, I have an oral defense, so everything should be quite clear and self-explainable to avoid any problems. Also, I have written 33 pages with double spacing. You can use parts of it and you should be very careful with plagiarism. My text is fine but you should be very careful.
This paper is very technical and only writers that have relevant experience with financial subjects should be responsible. Bear in mind that I do not have a lot of writing experience and that I will not be able to correct any mistakes in the layout.