Stefano Stefano Herzel
(), Marco Marco Nicolosi
and Catalin Starica
Stefano Stefano Herzel: University of Roma Tor Vergata
Marco Marco Nicolosi: University of Perugia
Catalin Starica: University of Neuchatel
Abstract: We examine the impact of sustainability criteria, as measured by the KLD scores, on optimal portfolio selection performed on an investment universe containing the equities in the S&P500 index and covering the period between 1993 and 2008. The optimizations are done according to the Markowitz mean-variance approach while sustainability constraints are introduced by eliminating from the investment pool those assets that do not comply to di®erent social responsibility criteria (screening). We compare the two efficient frontiers, i.e. the one without and the one with screening. A spanning test is performed to determine if the differences between the two types of efficient frontier are significant. We introduce a measure of how much an investor has to pay (through loss of return or through additional risk) in order to satisfy given sustainability criteria. The analysis is carried on separately on the three main dimensions of sustainability, namely Environmental, Social and Governance.
27 pages, October 11, 2010
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