Psychic dividends of socially responsible investment portfolios

Abstract

We provide a measure for the value of the non-financial satisfaction that accrues to individuals from investing in a socially responsible manner. This non-financial benefit is referred to as the ‘psychic dividend’ of socially responsible investing (SRI). Using constant relative risk aversion and loss aversion utility functions, we estimate that investors only need to earn a non-financial benefit of two to six basis points per month for them to be indifferent between investing in SRI and non-SRI portfolios. The estimates are similar in both the USA and the UK. The findings show that more investors are likely to benefit from investing in SRI given the decline in the lower bound on the psychic dividend that we observe over time.