Use of three stock index futures in hedging decisions

Includes bibliographical references (p. 29-30)

The Financial Performance of SRI Excluded Firms

Socially Responsible Investments (SRI) can be characterized as ‘negative screening’: investors eliminate certain firms from consideration based not on perceived performance but on inappropriate behavior (labor issues or support of same sex unions for example) or for products considered inappropriate for society (alcohol and tobacco for example). There have been a large number of studies examining the effect of this negative filter on investment performance, but little research on the operational impact on a firm of being systematically excluded by SRI investors. This paper examines what financial consequences, if any, occur if a firm is excluded by a large number of SRI funds. We find that debt ratios, profit margins, operating costs, and cash positions of SRI-excluded firms are affected. These excluded firms tend to use more debt, hold higher cash positions, and have higher profit margins and lower operating costs than similar, non-excluded firms

Demographic Profile of Socially Responsible Investors

Purpose– Given the size and growing importance of socially responsible (SR)‐related funds and investments, the purpose of this paper is to see if those who invest in socially responsible investments (SRIs) conform to a particular profile and if that profile is significantly different than that of a typical investor.Design/methodology/approach– This study surveyed a large group of US‐based, well‐informed, individual investors, members of the American Association of Individual Investors. The survey respondents included both those who invest according to SRI principles, and those with no interest in SRI, to determine if demographic differences exist.Findings– The paper finds that the typical SR investor is female and more likely to be single, younger, less wealthy, and better educated than their non‐SR counterparts.Research limitations/implications– Further research is needed to determine if the higher risk aversion of women and their greater concern for the environment found in previous studies is responsible for the results.Practical implications– Given the statistically significant differences, additional efforts must be made to convince wealthier and male investors of the merits of socially responsible investing.Originality/value– This is the first paper to use individuals who have committed resources to SR to compare their demographic characteristics to investors who have not invested in SRI products as distinct groups. Second, this is the first study to compare these groups using US investor data and to measure the statistical significance of the demographic factors

Demographic Profile of Socially Responsible Investors

Purpose– Given the size and growing importance of socially responsible (SR)‐related funds and investments, the purpose of this paper is to see if those who invest in socially responsible investments (SRIs) conform to a particular profile and if that profile is significantly different than that of a typical investor.Design/methodology/approach– This study surveyed a large group of US‐based, well‐informed, individual investors, members of the American Association of Individual Investors. The survey respondents included both those who invest according to SRI principles, and those with no interest in SRI, to determine if demographic differences exist.Findings– The paper finds that the typical SR investor is female and more likely to be single, younger, less wealthy, and better educated than their non‐SR counterparts.Research limitations/implications– Further research is needed to determine if the higher risk aversion of women and their greater concern for the environment found in previous studies is responsible for the results.Practical implications– Given the statistically significant differences, additional efforts must be made to convince wealthier and male investors of the merits of socially responsible investing.Originality/value– This is the first paper to use individuals who have committed resources to SR to compare their demographic characteristics to investors who have not invested in SRI products as distinct groups. Second, this is the first study to compare these groups using US investor data and to measure the statistical significance of the demographic factors

Valuation of Stock Index Futures and Their Relation to the Underlying Index: Theory and Evidence (Hedging)

265 p.Thesis (Ph.D.)--University of Illinois at Urbana-Champaign, 1984.Five hedging models representing a range of hedger motivation and attitudes to risk were applied to the three stock index futures. Both optimal hedge ratios and measures of effectiveness were calculated. It was found that the models worked well with stock index futures: the various criteria (utility maximization, variance minimization, basis arbitrage) were met using plausible optimal ratios. Both the exchange and the maturity of the contract used affected hedging behavior. Various pricing models were also applied to the futures: a simple cost of carry, a general equilibrium pricing model using systematic risk, and a forward-pricing model using compounded index value less a continuously compounded expected dividend component. The expected dividends were estimated using two time series models. It was found that the simple cost of carry was inadequate to explain price movements. The systematic risk of the contracts, as expected, approached the risk level of the market. The forward-pricing model resulted in prices which were slightly biased upward. Finally, the distributional characteristics and the independence of the contract prices were analyzed. All three of the futures were found to have slightly leptokurtic distributions. In addition, the New York contracts (NYSE index) were found to be negatively autocorrelated.U of I OnlyRestricted to the U of I community idenfinitely during batch ingest of legacy ETD

The Financial Performance of SRI Excluded Firms

Socially Responsible Investments (SRI) can be characterized as ‘negative screening’: investors eliminate certain firms from consideration based not on perceived performance but on inappropriate behavior (labor issues or support of same sex unions for example) or for products considered inappropriate for society (alcohol and tobacco for example). There have been a large number of studies examining the effect of this negative filter on investment performance, but little research on the operational impact on a firm of being systematically excluded by SRI investors. This paper examines what financial consequences, if any, occur if a firm is excluded by a large number of SRI funds. We find that debt ratios, profit margins, operating costs, and cash positions of SRI-excluded firms are affected. These excluded firms tend to use more debt, hold higher cash positions, and have higher profit margins and lower operating costs than similar, non-excluded firms

Socially Responsible Investing: An Investor’s Perspective

Given the growing importance of Socially Responsible Investing (SRI), it is surprising that there is no consensus of what the term SRI means to an investor. Further, most studies of this question rely solely on the views of investors who already invest in SRI funds. Our study surveys a unique pool of approximately 5,000 investors that contains both investors who have used SRI criteria in investment decisions and those who have not, and involves a broad array of criteria associated with SR investing. Our findings offer new insight into the SRI debate. For both sets of investors, environmental and sustainability issues dominate as the major category associated with SR investing.We find strong agreement in the ranking of the relative importance of various SRI factors despite differences between these two groups in their opinion of their overall importance. We also find that investors prefer to consider the SRI question in more holistic terms rather than using the exclusionary format favored by most SRI funds. Investors seem to prefer to reward firms who display overall positive social behavior rather than to exclude firms on the basis of certain products or practices. These findings can help providers of SR investment vehicles to improve the SRI products that they offer to the general investor, thus both encouraging the initial adoption of SR criteria by investors and increasing overall investment in SR choices

Social Responsibility Investing: A Review of the Critical Issues

Purpose– The purpose of this paper is to provide a review of the most recent work in major finance journals on socially responsible investment (SRI). While SRI involves individual investors, firms, and investment managers, the authors concentrate primarily on the investment view.Design/methodology/approach– The authors briefly review the development of socially responsible investing (SRI) and the theoretical issues related to SRI and investment choice. This is followed by a review of the empirical results concerning firm value. The question of whether SR mutual funds and SR indexes differ in performance or other characteristics from their conventional counterparts is discussed next, and lastly the authors present suggestions for future research directions.Findings– Despite the large and extensive amount of empirical research published on SRI in recent years, the authors find no definitive answer to the question of SR actions for either the firm or the investor. For firms, evidence linking corporate social responsibility (CSR) rankings with higher value is mixed, and depends on the type of CSR behavior studied as well as the measures of firm performance used. The performance of SR mutual funds and indexes generally are not significantly different from conventional funds or indexes, but again these results are also highly dependent on model specification, time period, benchmark, and other characteristics of the study.Practical implications– The value of SR investing has not been definitely proved. This means, however, that there is room for further on this important topic.Originality/value– This paper synthesizes and presents the most recent research on SRI from a wide variety of refereed sources