Abstract
This paper presents a novel framework for selecting socially responsible investment (SRI) portfolios. The Hedonic Price Method (HPM) is applied to obtain an evaluation of SRI criteria that is integrated into a multi-objective mathematical programming model. The HPM breaks away from the traditional view that goods are the direct object of utility; on the contrary, it assumes that utility is derived from the properties or characteristics of the goods themselves. As far as the investment decision is concerned, we assume that socially responsible investmentmutual funds (SRI funds) constitute heterogeneous goods. Our approach allows us to obtain a portfolio, the financial performance of which is similar to that which the investor would have reached if he or she had not taken into account social, ethical, and environmental considerations when making his or her investment decisions. This is achieved by designing a two-stage multi-objective mathematical programming procedure. In the first stage, we achieve the maximum level of financial satisfaction that the investor can receive. In the second stage, the portfolio with the best financial–social behavior is built. For the purpose of this second stage, the first stage portfolio is used as a benchmark for the financial performance of a socially responsible portfolio. To apply this methodology, we use portfolios composed of socially responsible and conventional mutual funds domiciled in Spain.
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Notes
Data has been provided by Morningstar.
We have used The EIRIS Green and Ethical Funds Directory (2008) to identify SEE characteristics that verify Spanish SRI funds.
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Acknowledgments
We would like to thank the anonymous referees for their valuable comments and suggestions. The authors wish to gratefully acknowledge the financial support from the Spanish Ministry of Education, Project ECO2011-26499.
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Appendix
Appendix
Graphical descriptions of the weekly composite returns of the Banif Estructurado FI fund. The histogram reflects a leptokurtic distribution.
The Box-plot shows a series of high-frequency in the tails, which is consistent with information provided by the QQ-plot, where you can see that both tails of the empirical distribution are heavier than the corresponding to a normal distribution. Similar features are seen in the rest of the funds (see Figs. 13, 14.
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Bilbao-Terol, A., Arenas-Parra, M., Cañal-Fernández, V. et al. Selection of Socially Responsible Portfolios Using Hedonic Prices. J Bus Ethics 115, 515–529 (2013). https://doi.org/10.1007/s10551-012-1411-6
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DOI: https://doi.org/10.1007/s10551-012-1411-6