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

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    67017_1.pdf (348.5Kb)
    Author(s)
    Li, Jane
    Cheung, Adrian
    Roca, Eduardo
    Griffith University Author(s)
    Roca, Eduardo D.
    Cheung, Adrian WK.
    Li, Jane
    Year published
    2010
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    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 ...
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    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.
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    Journal Title
    International Research Journal of Finance and Economics
    Volume
    2010
    Issue
    54
    Publisher URI
    http://www.eurojournals.com/irjfe_54_06.pdf
    Copyright Statement
    © 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.
    Subject
    Applied economics
    Econometrics
    Other economics not elsewhere classified
    Banking, finance and investment
    Publication URI
    http://hdl.handle.net/10072/36595
    Collection
    • Journal articles

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