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ESG compliant optimal portfolios: The impact of ESG constraints on portfolio optimization in a sample of European stocks
Full text linkThe introduction of the Environmental, Social, Governance (ESG) dimensions in setting up optimal
portfolios has been becoming of uttermost importance for the financial industry. Given the absence
of consensus in empirical literature and the limited number of studies providing performance
comparison of ESG strategies, the aim of this paper is to assess the impact of ESG on optimal
portfolios and to compare different approaches to the construction of ESG compliant portfolios.
Following Varmaz et al. (2022) optimization model, we minimize portfolio residual risk by imposing
a desired level of portfolio average systemic risk and ESG (measured by Bloomberg ESG score) over
both an unscreened and a screened sample based on the 586 stocks of the EURO STOXX Index in
the period January 2007 – August 2022.
Three are the main results. First, regardless of the level of portfolio systemic risk, the Sharpe ratio of
the optimal portfolios worsens as the target ESG level increases. Second, the Sharpe ratio dynamics
of portfolios with the highest average ESG scores follows market phases: it is very close to/higher
than other portfolios in bull markets, whereas it underperforms in stable or bear markets suggesting
that ESG portfolios do not seem to represent a safe haven. Third, negative screenings with medium low threshold reduce the performance of optimal portfolios with respect to optimization over an
unscreened sample. However, when adopting a very severe screening we obtain a superior
performance implying that very virtuous companies allows investors to do well by doing good
The trade-off between ESG screening and portfolio diversification in the short and in the long run
No full textThis paper empirically investigates the performance of portfolio screening strategies based on ESG (Environmental, Social, Governance) scores, by testing three main hypotheses motivated by the introduction of sustainability considerations within portfolio theory: i) ESG screened portfolios overperform the benchmark in the long term only if the exclusion threshold is low; ii) ESG screened portfolios do not overperform the benchmark in the short term independently of the exclusion threshold; iii) ESG screened portfolios overperform the benchmark in terms of systemic risk in periods of financial distress. To this end, negative and positive screening strategies based on Bloomberg ESG disclosure scores and different screening thresholds are set up from the 559 stocks belonging to the EURO STOXX index in the period 2007-2021. The risk-adjusted performance of the ESG screened portfolios is compared with the benchmark-passive one based on Sharpe Ratio (SR) and alphas (from both a one-factor model and the Carhart four-factor model) so as to test performance over total and systemic risk respectively. Two main results emerge. First, we prove overperformance of screened portfolios only in the long run and in the presence of negative screening strategies with a low screening threshold. Second, we do not find clear evidence of over-compensation for systemic risk in all periods of financial distress, thus the alleged safe-haven property of ESG portfolios is not always there. Given the increasing attention for sustainability, our results have relevant implications for both individual investors and the asset management industry
Normalità ed emarginazione: le politiche del controllo della devianza in situazione di complessità
No full textESG screening strategies and portfolio performance: how do they fare in periods of financial distress?
Full text linkThis paper analyses the impact of screening strategies based on ESG (Environmental, Social,
Governance) scores, with a focus on periods of financial distress such as the 2008 global recession
and the 2020 Covid-19 pandemic. To this end, negative and positive screening strategies based on
Bloomberg ESG disclosure scores and different screening thresholds are set up from the 559 stocks
belonging to the EURO STOXX index in the period 2007-2021. To compare ESG portfolios
performance with a benchmark passive strategy, we compute risk-adjusted performance measures:
the Sharpe ratio and the alphas resulting from both a one-factor model and the Carhart four-factor
model. Three main results emerge. First, each single ESG dimension has a different role in
determining performance: environmental and governance screens, and the combined ESG ones,
generally lead to over performance, in contrast to the social screens. Second, ESG screens represent
better performing strategies in the long-term, whereas, when the focus is on times of financial distress,
the passive strategy appears to perform better and ESG portfolios do not seem to represent a safe
haven. Finally, positive screening strategies, and in particular those based on the social dimension,
limit diversification benefits and are characterized by significant underperformance during periods of
crises. These results are useful to address ESG portfolio optimization and to gauge the role that
finance may have in support of sustainable economic development
The market price of greenness. A factor pricing approach for Green Bonds
Full text linkFostered by an empirical literature providing disparate evidence on the green premium, we propose
a two-factor model to explain returns on green bonds not only as a function of market risk but also of
the bond greenness. The second factor can be interpreted as a greenness premium, which can be either
positive or negative depending on the product of the price given by the market to greenness and the
sensitivity of the specific green bond to the latter. Based on the model proposed and its Fama-Mac
Beth estimation on a sample of Euro-denominated bonds over the period 08.10-2014-31.12.2019, we
are able to conclude that the market does price greenness, but the price is very small: including
Government green bonds is 0.7 bps, and focusing on corporate green bonds only is – 1.3 bps. In all
cases the dynamics of the price for greenness has a positive drift as the market reaches a more mature
phase, landing to a positive average value (2 bps), which implies greenness being viewed as a small
penalty. However, differences emerge when we look at the issuer sector level and at single bonds,
thus our model is able to explain the disparate empirical evidence provided by the literature on the
greenium. On the whole, results hint to a market where the difference in pricing between conventional
and green bonds is, ceteris paribus, shrinking, which is consistent with greenness becoming a new
normal. These results are of interest for many economic agents, including market participants and
financial intermediaries, whereby the latter are also called by the regulator to manage their portfolio
in consideration of climate risk
Going Beyond Counting First Authors in Author Co-citation Analysis
Full text linkThe present study examines one of the fundamental aspects of author co-citation analysis (ACA) - the way co-citation
counts are defined. Co-citation counting provides the data on which all subsequent statistical analyses and mappings
are based, and we compare ACA results based on two different types of co-citation counting - the traditional type that
only counts the first one among a cited work's authors on the one hand and a non-traditional type that takes into
account the first 5 authors of a cited work on the other hand. Results indicate that the picture produced through this non-traditional author co-citation counting contains more coherent author groups and is therefore considerably clearer. However, this picture represents fewer specialties in the research field being studied than that produced through the traditional first-author co-citation counting when the same number of top-ranked authors is selected and analyzed. Reasons for these effects are discussed
Variations on the Author
Full text link“Variations on the Author” discusses two of Eduardo Coutinho’s recent films (Um Dia na Vida, from 2010, and Últimas Conversas, posthumously released in 2015) and their contribution to the general question of documentary authorship. The director’s filmography is characterized by a consistent yet self-effacing form of authorial self-inscription: Coutinho often features as an interviewer that rather than express opinions propels discourses; an interviewer that is good at listening. This mode of self-inscription characterizes him as an author who is not expressive but who is nonetheless markedly present on the screen. In Um Dia na Vida, however, Coutinho is completely absent form the image, while Últimas Conversas, on the contrary, includes a confessional prologue that moves the director from the margins to the center of his films. This article examines the ways in which these works stand out in the filmography of a director who offers new insights into the notion of cinematic authorship
The role of households in financing the move towards a sustainable economy: results from a lab-in-the-field experiment in Italy
Full text linkBased on survey data from a lab-in-the-field experiment ran in October-November 2024 in different branches of a large Italian bank, this paper presents results on the household Willingness to Pay (WTP) for sustainable assets with the final aim to explore the effect of a visual treatment and possible differences across the three different dimensions of sustainability, i.e. E, S and G. Main results from the analyses by means of a linear regression model can be summarized as follows. First, the estimate for the negative visual treatment reaches 10% statistical significance, whereby the positive one is not significant, thus implying that the exposure to a negative visual treatment, by contrast to a positive one, is associated to an average increase the WTP for ESG. Second, both treatments are not significant once the model is augmented with an additional set of controls, with the WTP lower for graduated individuals, but higher for those with an investment horizon between 1 and 5 years and among those engaged in volunteering and concerned about the climate change. Third, when dissecting results by the factor of interest, the negative visual treatment significantly increases the WTP for the E dimension only. This result hints to household investors not considering sustainability as a multidimensional concept, but it is encouraging considering that the treatment used leveraged on the environmental dimension only. This seems to suggest that, with the correct leverage, the demand for ESG assets and a potentially positive WTP for them can be stimulated with obvious industry and policy implications
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