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Optimal responsible investment

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  • Pernille Jessen

Abstract

The article examines responsible investment portfolio allocation. The analysis defines an investor-specific measure of portfolio responsibility and incorporates this measure into two different conventional investment approaches. First, investor utility theory describes preferences for portfolio responsibility. The utility setup is intuitive; however, any implementation would require information on investor trade-offs between portfolio risk, expected return and responsibility. Second, mean-variance analysis captures portfolio responsibility with an additional restriction on the investment problem. This approach yields analytical solutions for the optimal responsible investment problem and provides a sensitivity analysis of the required portfolio responsibility. An example concerning index investment corroborates the results.

Suggested Citation

  • Pernille Jessen, 2012. "Optimal responsible investment," Applied Financial Economics, Taylor & Francis Journals, vol. 22(21), pages 1827-1840, November.
    • Handle: RePEc:taf:apfiec:v:22:y:2012:i:21:p:1827-1840
    DOI: 10.1080/09603107.2012.684786
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    Cited by:

    1. Gregor Dorfleitner & Mai Nguyen, 2017. "A new approach for optimizing responsible investments dependently on the initial wealth," Journal of Asset Management, Palgrave Macmillan, vol. 18(2), pages 81-98, March.
    2. Escobar-Anel, Marcos, 2022. "Multivariate risk aversion utility, application to ESG investments," The North American Journal of Economics and Finance, Elsevier, vol. 63(C).
    3. Aydin Aslan & Peter N. Posch, 2022. "How Do Investors Value Sustainability? A Utility-Based Preference Optimization," Sustainability, MDPI, vol. 14(23), pages 1-15, November.
    4. Massimiliano Kaucic & Filippo Piccotto & Gabriele Sbaiz & Giorgio Valentinuz, 2023. "Optimal Portfolio with Sustainable Attitudes under Cumulative Prospect Theory," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 13(4), pages 1-4.
    5. Dorfleitner, Gregor & Oswald, Eva-Maria & Röhe, Michaela, 2020. "The access of microfinance institutions to financing via the worldwide crowd," The Quarterly Review of Economics and Finance, Elsevier, vol. 75(C), pages 133-146.

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