Is socially responsible investing a luxury good?

Abstract

is socially responsible investing a luxury good? ravi bansal di wu amir yaron∗ this draft: august 30, 2017 abstract we investigate the risks and returns of socially responsible investing (sri) utilizing firmlevel data on corporate social responsibility ratings. while firms with high ratings do have higher average alphas than those with low ratings, these alphas are time varying, with highranked stocks significantly outperforming low-ranked ones during good economic times, but significantly underperforming them during bad economic times. in addition, reductions in firms’ social responsibility ratings lead to temporarily lower abnormal returns, and this fact is more pronounced during good economic times. furthermore, the abnormal returns after csr-related press announcements by individual firms are significantly positive during good times and mildly negative during bad times. these evidences are consistent with timevarying, wealth-dependent preferences toward sri, which result in more responsible stocks behaving in a fashion akin to luxury goods: the alpha difference is significantly correlated with both luxury consumption from nipa and the sales growth of luxury-good retailers. ∗ravi bansal is the j. b. fuqua professor at the fuqua school of business, duke university, and nber, email: ravi.bansal@duke.edu. di (andrew) wu is a ph.d. student of finance at the wharton school, university of pennsylvania, email: wudi1@wharton.upenn.edu. amir yaron is the robert morris professor of banking …

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