Macro Asset Allocation with Social Impact Investments

• Main Authors: Massimo Biasin, Roy Cerqueti, Emanuela Giacomini, Nicoletta Marinelli, Anna Grazia Quaranta, Luca Riccetti
• Format: Article
• Language: English
• Published: MDPI AG 2019-06-01
• Series: Sustainability
• Subjects: social impact investments; asset allocation; portfolio diversification; out-of-sample performance; market index
• Online Access: https://www.mdpi.com/2071-1050/11/11/3140

Using a unique dataset of 50 listed companies that meet the majority of the OECD requirements for social impact investments, we construct a social impact finance stock index and investigate how investing in social impact firms can contribute to portfolio risk-return performance. We build portfolios with three different methodologies (naïve, Markowitz mean-variance optimization, GARCH-copula model), and we study the performance in terms of returns, Sharpe ratio, utility, and forecast premium based on a constant relative risk aversion function for investors with different levels of risk aversion. Consistent with the idea that social impact investment can improve portfolio risk-return performance, the results of our macro asset allocation analysis show the importance of a large fraction of investor portfolios’ stake committed to social impact investments.