Markowitz Revisited: Social Portfolio Engineering

Gasser, Stephan and Rammerstorfer, Margarethe and Weinmayer, Karl (2017) Markowitz Revisited: Social Portfolio Engineering. European Journal of Operational Research, 258 (3). pp. 1181-1190. ISSN 0377-2217


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In recent years socially responsible investing has become an increasingly more popular subject with both private and institutional investors. At the same time, a number of scientific papers have been published on socially responsible investments (SRIs), covering a broad range of topics, from what actually defines SRIs to the financial performance of SRI funds in contrast to non-SRI funds. In this paper, we revisit Markowitz' Portfolio Selection Theory and propose a modification allowing to incorporate not only asset-specific return and risk but also a social responsibility measure into the investment decision making process. Together with a risk-free asset, this results in a three-dimensional capital allocation plane that allows investors to custom-tailor their asset allocations and incorporate all personal preferences regarding return, risk and social responsibility. We apply the model to a set of over 6,231 international stocks and find that investors opting to maximize the social impact of their investments do indeed face a statistically significant decrease in expected returns. However, the social responsibility/risk-optimal portfolio yields a statistically significant higher social responsibility rating than the return/risk-optimal portfolio.

Item Type: Article
Additional Information: To see the final version of this paper please visit the publisher's website. Access to the published version requires a subscription. The original publication is available at
Keywords: Finance / Socially Responsible Investments / Portfolio Optimization / International Financial Markets
Classification Codes: JEL G11, G15, A13
Version of the Document: Accepted for Publication
Depositing User: ePub Administrator
Date Deposited: 04 Nov 2015 15:12
Last Modified: 01 Aug 2020 19:07
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