Abstract
A number of researchers have sought to test the theoretical prediction of Modern Portfolio Theory that asserts that Socially Responsible Investing (SRI) under-performs conventional investing. In contrast to the majority of literature, which focuses on comparing SRI funds’ performance to conventional funds, this study compares the performance of South Africa’s JSE SRI Index to the performance of local conventional market indices in the period 2004-2012. Using Sharpe ratios, the results of the study indicate that in comparison to conventional indices, the JSE SRI Index generally exhibits an inferior risk-return trade-off in both bull and bear market conditions. Furthermore, spanning tests based on the single-factor Capital Asset Pricing Model provide evidence that the JSE SRI Index is only likely to earn similar risk-adjusted returns to the Synthetic Conventional Index (a self-constructed index tracking non-overlapping conventional stocks). However, if the assumption of a non-restricted investment universe for a non-socially conscious investor is considered, there is a risk-adjusted return penalty for investing in the JSE SRI Index.
Highlights
Interest in Socially Responsible Investing (SRI) has recently come to the fore globally
Supporters of SRI contend that any loss in deriving mean-variance efficient portfolios as a result of a constrained investment universe is compensated for by the desirable profile characteristics (e.g. ability to raise funds (Waddock & Graves, 1997); ability to hire a quality workforce (Greening & Turban, 2000)) of the screened assets’ underlying companies
In terms of International studies, the literature review is focused on studies that: (i) directly compare SRI fund performance to conventional investment fund performance and/or a benchmark, (ii) compare artificial/hypothetical SRI portfolios to a conventional benchmark, (iii) compare SRI index performance to conventional stock indices, and in terms of South African studies, the focus is on reviewing research that has been done in the SRI domain far
Summary
Interest in Socially Responsible Investing (SRI) has recently come to the fore globally. This study compares the risk-return profile of South Africa’s Socially Responsible Index (launched by the JSE Limited (previously named the Johannesburg Stock Exchange and the JSE Securities Exchange South Africa) – referred to as the JSE SRI Index) to that of local conventional market indices (i.e. FTSE/JSE All Share Index, FTSE/JSE Top 40 Index, FTSE/JSE Mid Cap Index and FTSE/JSE Small Cap Index). Data from the inception (May 2004) of the JSE SRI Index to August 2012 is employed This period captures both bull and bear market conditions (determined in the same way as in Natarajan, 2011), allowing assessment of how different market conditions influence financial performance of the indices under consideration. The JSE SRI Index can be regarded as heavily weighted towards large to mid capitalised companies
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
