Details
| Original language | English |
|---|---|
| Article number | 103754 |
| Journal | International Review of Financial Analysis |
| Volume | 97 |
| Early online date | 15 Nov 2024 |
| Publication status | E-pub ahead of print - 15 Nov 2024 |
Abstract
Conventional risk proxies are measured assuming that investors have symmetric risk preferences, with upside and downside deviations from the expectation being equivalently undesirable. Responsible investors, however, have dual financial aims of enhancing upside potential while reducing downside risk by actively incorporating environmental, social, and governance (ESG) aspects into the investment process. We utilize a non-symmetric option pricing research design to test whether responsible investors could live up to their ambitions. We find that those who are simply Principles for Responsible Investment (PRI) members do not deliver the desirable asymmetric performance, while financial firms with highly rated responsible investment processes can actually achieve both aims for their own shareholders: enhancing upside potentials and protecting themselves from downside risks.
Keywords
- Downside risk, ESG opportunity and risk, Institutional investor, Investing objective, Option implied volatility, Responsible investing, Upside potential
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
- Finance
- Economics, Econometrics and Finance(all)
- Economics and Econometrics
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In: International Review of Financial Analysis, Vol. 97, 103754, 01.2025.
Research output: Contribution to journal › Article › Research › peer review
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TY - JOUR
T1 - Responsible investing: Upside potential and downside protection?
AU - Gao, Yumeng
AU - Hoepner, Andreas G.F.
AU - Prokopczuk, Marcel
AU - Rouxelin, Florent
AU - Würsig, Christoph Matthias
PY - 2024/11/15
Y1 - 2024/11/15
N2 - Conventional risk proxies are measured assuming that investors have symmetric risk preferences, with upside and downside deviations from the expectation being equivalently undesirable. Responsible investors, however, have dual financial aims of enhancing upside potential while reducing downside risk by actively incorporating environmental, social, and governance (ESG) aspects into the investment process. We utilize a non-symmetric option pricing research design to test whether responsible investors could live up to their ambitions. We find that those who are simply Principles for Responsible Investment (PRI) members do not deliver the desirable asymmetric performance, while financial firms with highly rated responsible investment processes can actually achieve both aims for their own shareholders: enhancing upside potentials and protecting themselves from downside risks.
AB - Conventional risk proxies are measured assuming that investors have symmetric risk preferences, with upside and downside deviations from the expectation being equivalently undesirable. Responsible investors, however, have dual financial aims of enhancing upside potential while reducing downside risk by actively incorporating environmental, social, and governance (ESG) aspects into the investment process. We utilize a non-symmetric option pricing research design to test whether responsible investors could live up to their ambitions. We find that those who are simply Principles for Responsible Investment (PRI) members do not deliver the desirable asymmetric performance, while financial firms with highly rated responsible investment processes can actually achieve both aims for their own shareholders: enhancing upside potentials and protecting themselves from downside risks.
KW - Downside risk
KW - ESG opportunity and risk
KW - Institutional investor
KW - Investing objective
KW - Option implied volatility
KW - Responsible investing
KW - Upside potential
UR - http://www.scopus.com/inward/record.url?scp=85211100895&partnerID=8YFLogxK
U2 - 10.1016/j.irfa.2024.103754
DO - 10.1016/j.irfa.2024.103754
M3 - Article
VL - 97
JO - International Review of Financial Analysis
JF - International Review of Financial Analysis
SN - 1057-5219
M1 - 103754
ER -