Yes, Indeed, Idiosyncratic Risk Matters for Socially Responsible Investments!

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Title Yes, Indeed, Idiosyncratic Risk Matters for Socially Responsible Investments!
Author Li, Jane; Cheung, Adrian; Roca, Eduardo Dacillo
Journal Name International Research Journal of Finance and Economics
Year Published 2010
Place of publication Austria
Publisher European Journals, Inc.
Abstract We provide empirical evidence regarding the effect of stock market regimes on Social Responsible Investment (SRI). Using the Markov Switching Model, we identify three market regimes for the study period between June 2001 and December 2009 in the US. These regimes are the low, medium, and high volatility states. We find a positive relationship between the idiosyncratic risk (i.e. unsystematic risk) and return during low and medium volatility states. However, this positive relationship tends to disappear during high volatility states. In addition, our analysis suggests that idiosyncratic risk has no forecasting power over SRI future returns. Overall, our findings imply that SRI investors are rewarded for bearing the additional SRI specific risk (idiosyncratic risk) when the market is less volatile. This reward, however, becomes uncertain during periods of high market volatility.
Peer Reviewed Yes
Published Yes
Publisher URI http://www.eurojournals.com/irjfe_54_06.pdf
Copyright Statement Copyright 2010 EuroJournals Publishing, Inc. The attached file is reproduced here in accordance with the copyright policy of the publisher. Please refer to the journal's website for access to the definitive, published version.
Volume 2010
Issue Number 54
Page from 63
Page to 74
ISSN 1450-2887
Date Accessioned 2011-01-24
Date Available 2011-03-11T05:52:14Z
Language en_AU
Faculty Griffith Business School
Subject Economics
URI http://hdl.handle.net/10072/36595
Publication Type Journal Articles (Refereed Article)
Publication Type Code c1

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