Abstract
This research investigated the performance of a dynamic portfolio that consists of sustainable/ethical stocks and gold. The main purpose of this study is to prove that the inclusion of gold in sustainable/ethical stocks portfolios could produce better performance. Therefore, the method used in this research, DCC-GARCH, was relaxing the basic assumptions in the theory of modern portfolio that is under the assumption of the normality of stock return and securities would have constant correlation. This research used data such as SRI-KEHATI Index (SKI) and Jakarta Islamic Index (JII) in Indonesia as a proxy for sustainable investments. Additionally, this research used gold from 2013 to 2019. This study is able to provide evidence regarding the ability of a dynamic portfolio to minimize the level of portfolio risk. However, this led a lower rate of return. Based on the OLS regression, gold is also proven as a weak safe haven for sustainable investment in Indonesia. Investors who believe in ethical investment may include gold in this time-varying approach when formulating the portfolio to reduce risk significantly. The inclusion of gold in portfolios could produce hedging effectiveness. Overall, this study supports some previous findings regarding the ability of gold as an instrument, which could reduce investment risk if involved in a portfolio.
Highlights
Sustainable investment, ethical investment, or socially responsible investment is when investors incorporate environmental, social, and governance (ESG) aspects into investment decisions
The aim of the investment is quite related to corporate social responsibility (CSR) when firms are concerned about sustainability, which is focused on the environmental issues and social impacts, instead of accounting numbers
Following Baur and Lucey (2010), this paper identifies the role of gold as a diversifier, hedge, or safe haven
Summary
Sustainable investment, ethical investment, or socially responsible investment is when investors incorporate environmental, social, and governance (ESG) aspects into investment decisions. The objective of this type of investment is to obtain returns and to improve the social and environmental conditions (or frequently mentioned as the sustainable and responsible investment (SRI)). The aim of the investment is quite related to corporate social responsibility (CSR) when firms are concerned about sustainability, which is focused on the environmental issues and social impacts, instead of accounting numbers. In other words, it is the corporate action or investment products that have a good social and environmental impacts
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