Risk-Adjusted Returns of Ethical Companies
DOI:
https://doi.org/10.33423/jaf.v24i5.7439Keywords:
accounting, finance, socially responsible companies, risk-adjusted returns, Sharpe Ratio, Jensen Alpha, Treynor Ratio, Ethisphere, ethical investment, stock performance, sector benchmark, investment performance, financial performance, ethical portfolio, public companies, technology sector, financial sectorAbstract
This study examines the investment performance of companies recognized for their socially responsible behavior, specifically focusing on the long-time honorees of Ethisphere's World’s Most Ethical Companies list. The analysis includes 28 publicly traded organizations from sectors such as Technology, Financials, and Consumer Goods, with stock returns and sector Net Asset Values (NAVs) used to assess risk-adjusted performance. Key metrics include the Sharpe Ratio, Jensen Alpha, and Treynor Ratio, all of which measure returns relative to risk. Results show that while more than half of the companies underperformed their respective sectors, the overall ethical portfolio generated positive risk-adjusted excess returns, primarily driven by strong performance from the technology sector. These findings suggest that ethical companies may provide valuable investment opportunities, particularly in sectors like technology and finance.
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