Open AccessStandard or Sustainable - Which Offers Better Performance for the Passive Investor
Author(s) -
Daniel C Khajenouri,
Jacob H Schmidt
Publication year - 2020
Language(s) - English
DOI - 10.47260/jafb/1114
Subject(s) - sharpe ratio , institutional investor , equity (law) , portfolio , investment management , economics , index (typography) , closing (real estate) , stock market index , alternative investment , financial economics , business , econometrics , monetary economics , finance , computer science , corporate governance , stock market , paleontology , horse , world wide web , political science , market liquidity , law , biology
This research report studies the risk-adjusted performance of the major internationalequity indices against their ESG screened equivalents (MSCI World, MSCI USA,MSCI Emerging Markets, and MSCI Europe). The daily closing prices, returns,standard deviations, and Sharpe ratio characteristics are analyzed from 2013 to 2020.The current literature available from highly rated journals on the subject is alsoconsidered, which provided mixed results on the subject matter. We found noacademic papers focusing specifically on analyzing the performance of indices andtheir ESG screened equivalents. With this paper, we intend to fill this gap in thecurrent research available.We conclude that for the passive investor, choosing ESG screened indices over theconventional equivalent has consistently provided better risk-adjusted returns overthe long-term period. These findings are robust with the consistently higher Sharperatios over the eight-year period for each index. We predict ESG investments maycontinue to outperform due to changing retail and institutional investor preferences.Keywords: Sustainable, Passive, Investment, ESG, Asset, Management, Wealth