ESG-Based Factor Investing
(2020) NEKN02 20201Department of Economics
- Abstract
- The purpose of this thesis is to examine if there is a cost, in terms of lower risk-adjusted returns, associated with using ESG factors in the portfolio creation process. The ability of using an ESG Smart Beta strategy, to outperform a passive cap-weighted index and a regular Smart Beta strategy in terms of risk-adjusted returns, was examined. By adopting a Smart Beta methodology, seven different portfolios were constructed, for which the Russell 3000 worked as the investment universe and benchmark. The portfolios consisted of two pure financial portfolios, and five portfolios utilizing ESG factors. The results indicate that it is possible to create excess returns and enhance risk-adjusted returns against a regular Smart Beta strategy and... (More)
- The purpose of this thesis is to examine if there is a cost, in terms of lower risk-adjusted returns, associated with using ESG factors in the portfolio creation process. The ability of using an ESG Smart Beta strategy, to outperform a passive cap-weighted index and a regular Smart Beta strategy in terms of risk-adjusted returns, was examined. By adopting a Smart Beta methodology, seven different portfolios were constructed, for which the Russell 3000 worked as the investment universe and benchmark. The portfolios consisted of two pure financial portfolios, and five portfolios utilizing ESG factors. The results indicate that it is possible to create excess returns and enhance risk-adjusted returns against a regular Smart Beta strategy and a benchmark index, by using ESG factors in combination with a fundamental investment strategy such as Smart Beta. Investors do not sacrifice any risk-adjusted returns, and the effects are particularly strong when ESG factors are combined with regular financial factors such as Value or Quality. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/9017481
- author
- Bergström, Martin LU and Svensson, Jacob LU
- supervisor
- organization
- alternative title
- ESG factors ability to enhance risk-adjusted returns in Smart Beta investment strategies
- course
- NEKN02 20201
- year
- 2020
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- ESG, Smart Beta, Factor Investing
- language
- English
- id
- 9017481
- date added to LUP
- 2020-08-29 11:12:44
- date last changed
- 2020-08-29 11:12:44
@misc{9017481, abstract = {{The purpose of this thesis is to examine if there is a cost, in terms of lower risk-adjusted returns, associated with using ESG factors in the portfolio creation process. The ability of using an ESG Smart Beta strategy, to outperform a passive cap-weighted index and a regular Smart Beta strategy in terms of risk-adjusted returns, was examined. By adopting a Smart Beta methodology, seven different portfolios were constructed, for which the Russell 3000 worked as the investment universe and benchmark. The portfolios consisted of two pure financial portfolios, and five portfolios utilizing ESG factors. The results indicate that it is possible to create excess returns and enhance risk-adjusted returns against a regular Smart Beta strategy and a benchmark index, by using ESG factors in combination with a fundamental investment strategy such as Smart Beta. Investors do not sacrifice any risk-adjusted returns, and the effects are particularly strong when ESG factors are combined with regular financial factors such as Value or Quality.}}, author = {{Bergström, Martin and Svensson, Jacob}}, language = {{eng}}, note = {{Student Paper}}, title = {{ESG-Based Factor Investing}}, year = {{2020}}, }