Journal of Asset Management

, Volume 18, Issue 2, pp 81–98 | Cite as

A new approach for optimizing responsible investments dependently on the initial wealth

  • Gregor DorfleitnerEmail author
  • Mai Nguyen
Original Article


This article introduces two approaches for modelling the dependency of the optimal portfolio choice on the available amount of investment volume from the perspective of socially responsible investors who seek both financial and ethical benefits. We complement the expected utility framework and the mean-variance portfolio selection model by a sustainability dimension to account for the additional utility that investors derive from the social attribute of the investment. By using a numeric example, we illustrate how the optimal investment choice changes depending on the initial wealth and the investor’s appreciation of sustainable and responsible objectives. The applicability of the proposed models is shown by an actual investment case.


finance socially responsible investing expected utility theory portfolio optimization non-financial utility 

JEL Classification




We thank an anonymous referee for valuable suggestions and the Fritz Thyssen Stiftung, which provided financial support for the project ‘Spezielle Aspekte der Berücksichtigung von Nachhaltigkeit in der Anlageentscheidung’.


  1. Arrow, K.J. (1965) Aspects of the Theory of Risk-Bearing. Helsinki: Yrjö Jahnssonin Säätiö.Google Scholar
  2. Aupperle, K., Carroll, A. and Hatfield, J.D. (1985) An empirical examination of the relationship between corporate social responsibility and profitability. Academy of Management Journal 28(2):446–463.Google Scholar
  3. Ballestero, E., Bravo, M., Pérez-Gladish, B., Arenas-Parra, M. and Plà-Santamaria, D. (2012) Socially responsible investment: A multicriteria approach to portfolio selection combining ethical and financial objectives. European Journal of Operational Research 216(2):487–494.Google Scholar
  4. Bamberg, G. and Dorfleitner, G. (2013) On a neglected aspect of portfolio choice: The role of the invested capital. Review of Managerial Science 7(1):85–98.Google Scholar
  5. Benson, K.L. and Humphrey, J.E. (2008) Socially responsible investment funds: Investor reaction to current and past returns. Journal of Banking & Finance 32(9):1850–1859.Google Scholar
  6. Bierwag, G.O. (1974) The rationale of the mean-standard deviation analysis: Comment. American Economic Review 64(3):431–433.Google Scholar
  7. Bilbao-Terol, A., Arenas-Parra, M., Canal-Fernandez, V. and Bilbao-Terol, C. (2013) Selection of socially responsible portfolios using hedonic prices. Journal of Business Ethics 115(3):515–529.Google Scholar
  8. Bilbao-Terol, A., Arenas-Parra, M., Canal-Fernandez, V. and Bilbao-Terol, C. (2015) Multi-criteria decision making for choosing socially responsible investment within a behavioral portfolio theory framework: A new way of investing into a crisis environment. Annals of Operations Research. doi:  10.1007/s10479-015-1947-9.
  9. Bollen, N.P.B. (2007) Mutual fund attributes and investor behavior. Journal of Finance and Quantitative Analysis 42(3):683–708.Google Scholar
  10. Brimble, M., Vyvyan, V. and Ng, C. (2013) Belief and investing: Preferences and attitudes of the faithful. Australasian Accounting Business and Finance Journal 7(1):23–41.Google Scholar
  11. Calvo, C., Ivorra, C. and Liern, V. (2014) Fuzzy portfolio selection with non-financial goals: exploring the efficient frontier. Annals of Operations Research. doi: 10.1007/s10479-014-1561-2.
  12. Chatterji, A., Durand, R., Levine, D. and Touboul, S. (2015) Do ratings of firms converge? Implications for strategy research. Strategic Management Journal. doi: 10.1002/smj.2407.
  13. Cornell, B. and Shapiro, A.C. (1987) Corporate stakeholders and corporate finance. Financial Management 16(1):5–14.Google Scholar
  14. Derwall, J., Koedijk, K. and Horst, J.T. (2011) A tale of values-driven and profit-seeking social investors. Journal of Banking & Finance 35(8):2137–2147.Google Scholar
  15. Dorfleitner, G., Halbritter, G. and Nguyen, M. (2015) Measuring the level and risk of corporate responsibility - An empirical comparison of different ESG rating approaches. Journal of Asset Management 16:450–466.Google Scholar
  16. Dorfleitner, G., Leidl, M. and Reeder, J. (2012) Theory of social returns in portfolio choice with application to microfinance. Journal of Asset Management 13(6):384–400.Google Scholar
  17. Dorfleitner, G. and Nguyen, M. (2016) Which proportion of SR investments is enough? A survey-based approach. Business Research 9:1–25.Google Scholar
  18. Dorfleitner, G. and Utz, S. (2012) Safety first portfolio choice based on financial and sustainability returns. European Journal of Operational Research 221(1):155–164.Google Scholar
  19. Dorfleitner, G. and Utz, S. (2014) Profiling German-speaking socially responsible investors. Qualitative Research in Financial Markets 6(2):118–156.Google Scholar
  20. Dupré, D., Girerd-Potin, I. and Kassoua, R. (2004) Adding an ethical dimension to portfolio management. Finance India 18:625–642.Google Scholar
  21. Eccles, R.G., Ioannou, I. and Serafeim, G. (2014) The impact of corporate sustainability on organizational processes and performance. Management Science 60(11):2835–2857.Google Scholar
  22. Feldstein, M.S. (1969) Mean-variance analysis in the theory of liquidity preference and portfolio selection. Review of Economic Studies 36(1):5–12.Google Scholar
  23. Hallerbach, W., Ning, H., Soppe, A. and Spronk, J. (2004) A framework for managing a portfolio of socially responsible investments. European Journal of Operational Research 153(2):517–529.Google Scholar
  24. Hirschberger, M., Steuer, R. E., Utz, S., Wimmer, M. and Qi, Y. (2013) Computing the non-dominated surface in tri-criterion portfolio selection. Operations Research 61(1):169–183.Google Scholar
  25. Jessen, P. (2012) Optimal responsible investment. Applied Financial Economics 22(21):1827–1840.Google Scholar
  26. Kempf, A. and Osthoff, P. (2007) The effect of socially responsible investing on portfolio performance. European Financial Management 13(5):908–922.Google Scholar
  27. Khan, M., Serafeim, G. and Yoon, A. (2016) Corporate sustainability: First evidence on materiality. Accounting Review (in press).Google Scholar
  28. Kroll, Y., Levy, H., and Markowitz, H.M. (1984) Mean-variance versus direct utility maximization. The Journal of Finance 39(1):47–61.Google Scholar
  29. Kruschwitz, L. and Husmann, S. (2012) Finanzierung und Investition. 7th edn. Munic: Oldenbourg Verlag.Google Scholar
  30. Levy, H. and Markowitz, H.M. (1979) Approximating expected utility by a function of mean and variance. The American Economic Review 69(3):308–317.Google Scholar
  31. Lewis, A. and Mackenzie, C. (2000). Morals, money, ethical investing and economic psychology. Human Relations 53(2):179–191.Google Scholar
  32. Mackenzie, C. and Lewis, A. (1999) Morals and markets: The case of ethical investing. Business Ethics Quarterly 9(3):439–452.Google Scholar
  33. Markowitz, H. (1952) Portfolio selection. The Journal of Finance 7(1):77–91.Google Scholar
  34. Markowitz, H. (1959) Portfolio Selection - Efficient Diversification of Investments. 2nd edn. Cambridge:Basil Blackwell.Google Scholar
  35. Mănescu, C. (2011) Stock returns in relation to environmental, social and governance performance: Mispricing or compensation for risk? Sustainable Development 19(2):95–118.Google Scholar
  36. Nilsson, J. (2009) Segmenting socially responsible mutual fund investor: The influence of financial return and social responsibility. International Journal of Bank Marketing 27(1):5–31.Google Scholar
  37. Pasewark, W.R. and Riley, M.E. (2010) It’s a matter of principle: The role of personal values in investment decisions. Journal of Business Ethics 93(2):237–253.Google Scholar
  38. Pérez-Gladish, B., Benson, K. and Faff, R. (2012) Profiling socially responsible investors: Australian evidence. Australian Journal of Management 37(2):189–209.Google Scholar
  39. Pratt, J.W. (1964) Risk aversion in the small and in the large. Econometrica 32(1/2):122–136.Google Scholar
  40. Pulley, L.B. (1983) Mean-variance approximations to expected logarithmic utility. Operations Research 31(4):685–695.Google Scholar
  41. Renneboog, L., Horst, J.T. and Zhang, C. (2008) Socially responsible investments: Institutional aspects, performance, and investor behavior. Journal of Banking & Finance 32(9):1723–1742.Google Scholar
  42. Rosen, B.N., Sandler, D.M. and Shani, D. (1991) Social issues and socially responsible investment behavior: A preliminary empirical investigation. Journal of Consumer Affairs 25(2):221–234.Google Scholar
  43. Rosen, S. (1974) Hedonic prices and implicit markets: Product differentiation in pure competition. Journal of Political Economy 82(1):34–55.Google Scholar
  44. Ruf, B.M., Muralidhar, K., Brown, R. M., Janney, J.J. and Paul, K. (2001) An empirical investigation of the relationship between change in corporate social performance and financial performance: A stakeholder theory perspective. Journal of Business Ethics 32(2):143–156.Google Scholar
  45. Ruf, B.M., Muralidhar, K. and Paul, K. (1998) The development of a systematic, aggregate measure of corporate social performance. Journal of Management 24(1):119–133.Google Scholar
  46. Schmidts, A. (1997) The relationship between risk attitude and strength of preference: A test of instrinsic risk attitude. Management Science 43(3):357–370.Google Scholar
  47. Semenova, N. and Hassel, L.G. (2014) On the validity of environmental performance metrics. Journal of Business Ethics. doi: 10.1007/s10551-014-2323-4.
  48. Steuer, R.E., Wimmer, M. and Hirschberger, M. (2013) Overviewing the transition of Markowitz bi-criterion portfolio selection to tri-criterion portfolio selection. Journal of Business Economics 83(1):61–85.Google Scholar
  49. Tobin, J. (1969) Comment on Borch and Feldstein. Review of Economic Studies 36(1):13–14.Google Scholar
  50. Tsai, W.-H., Chou, W.-C. and Hsu, W. (2009) The sustainability balanced scorecard as a framework for selecting socially responsible investment: An effective MCDM model. Journal of the Operational Research Society 60(10):1396–1410.Google Scholar
  51. Tsiang, S.C. (1972) The rationale of the mean-standard deviation analysis, skewness preference, and the demand for money. The American Economic Review 62(3):354–371.Google Scholar
  52. US SIF (2012) Report on sustainable and responsible investing trends in the United States 2012. US SIF Foundation, Forum for Sustainable and Responsible Investment.
  53. Utz, S., Wimmer, M., Hirschberger, M. and Steuer, R.E. (2014) Tri-criterion inverse portfolio optimization with application to socially responsible mutual funds. European Journal of Operational Research 234(2):491–498.Google Scholar
  54. von Neumann, J. and Morgenstern, O. (1947) Theory of games and economic behaviour. 2nd edn. Princeton: Princeton University Press.Google Scholar
  55. Webley, P., Lewis, A. and Mackenzie, C. (2001) Commitment among ethical investors: An experimental approach. Journal of Economic Psychology 22(1):27–42.Google Scholar
  56. Young, W.E. and Trent, R.N. (1969) Geometric mean approximation of individual securities and portfolio performance. Journal of Financial and Quantitative Analysis 4(2):179–199.Google Scholar

Copyright information

© Macmillan Publishers Ltd 2016

Authors and Affiliations

  1. 1.Department of FinanceUniversity of RegensburgRegensburgGermany

Personalised recommendations