The Relationship between Screening Intensity and Performance of Socially Responsible Investment Funds

Screening: Value enhancing or diminishing?

“…Given the sign of the quadratic term, our results suggest that screening stringency affects portfolio risk‐adjusted returns in an inverted curvilinear manner. This finding is consistent with those of Gharghori and Ooi (2016) and Jin (2020). In contrast, specific risk incurred appears to display a strictly increasing relationship with screening stringency.…”

“…Using this model, our results show that screening stringency presents an inverted curvilinear and an increasing relationship with abnormal returns and specific risk, respectively. Overall, we confirm the results of Gharghori and Ooi (2016), Jin (2020), and those of Verheyden et al (2016) solely for specific risk.…”

“…Shifting the ESG rating threshold, we examine the risk and return metrics of these portfolios between the beginning of 2007 and 2019 end. Consistent with previous literature (Barnett & Salomon, 2006; Capelle‐Blancard & Monjon, 2014; Gharghori & Ooi, 2016), we tested for both a linear and curvilinear effects of screening stringency. While previous studies examined the impact of screening in a bidimensional setting, our results are robust to differing levels of market efficiency regarding ESG across regions (Hill et al, 2007).…”

“…Combining stakeholder theory and MPT, another group of academics alternatively suggested a trade‐off setting. Although still in debate, empirical evidence supported both a curvilinear (Barnett & Salomon, 2006; Capelle‐Blancard & Monjon, 2014) and an inverted curvilinear relationship (Gharghori & Ooi, 2016; Jin, 2020). Hence, we advanced that screening and portfolio returns would exhibit some form of curvilinear relationship (Hypothesis 3).…”

“…This proposition was empirically confirmed by Fernández Sánchez and Luna Sotorrío (2014), Lee et al (2010), and Verheyden et al (2016). Second, another group of scholars has argued that adjoining stakeholder theory to MPT could endorse either a curvilinear (Barnett & Salomon, 2006; Capelle‐Blancard & Monjon, 2014) or an inverted curvilinear relationship (Gharghori & Ooi, 2016). This proposition is supported by the superior financial performance uncovered for leading ESG stocks (Friede et al, 2015).…”