Abstract

Ethically Screened Portfolios and Investment Policy in the Light of Empirical Studies - An Overview of the Latest State of Empirical Capital Market Research

Portfolios and investment strategies guided by ethical criteria have grown in popularity especially in Anglo-Saxon markets in recent years, and research on ethical stock picking has been subject to continuous analysis in the United States from the 1970s. Ethically structured portfolios are generally the outcome of an active investment strategy reflecting the principles of style investing. In a capital market theory context, such portfolios represent, a priori, inefficient solutions burdening investors with the costs that arise from lacking diversification and from insufficient compensation for the unsystematic risk. Most empirical studies on ethical stock picking are based on CAPM or APT models. Another group proceeds from event studies as a method. After the empirical work hitherto done has been subjected to evaluation, it would not be fair, overall, to speak about any definitive underperformance of portfolios screened for ethico-ecological and ethicosocial purposes, as would have had to be expected in terms of capital market theory indicators. Many studies have even found that ethically screened portfolios outperform with respect to benchmark. On the whole, the studies are highly heterogenous in terms of the methods used. This paper is meant to be an overview of the latest findings of empirical research. Some of the findings reached by individual empirical studies are the source of further indications regarding the critical discussion currently under way on the known capital market models as well as on approaches towards how they can be further developed.