DO SOCIALLY RESPONSIBLE AND RISK-TAILORED PORTFOLIOS WIN? A COMPARATIVE ANALYSIS

Authors

DOI:

https://doi.org/10.7166/35-1-2922

Abstract

This study introduces three extensions of the Markowitz portfolio selection model: (1) matching portfolio risk to individual investors’ risk appetite; (2) excluding certain shares; and (3) environmental, social, and governance (ESG) integration. The models are compared to the traditional Markowitz model using empirical data from JSE Limited.

The findings reveal that differentiating portfolios on the basis of risk appetites or exclusions had a limited impact on future returns. However, portfolios differentiated by ESG integration showed significantly higher future returns than the other models or industry investments. The study highlights the superiority of ESG integration and suggests that current portfolio selection models do not fully capture the art of investing.

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Author Biographies

Melissa van Niekerk, Department of Systems and Industrial Engineering, University of Pretoria, Pretoria

Melissa completed her Masters of Engineering Degree in Industrial
Engineering Cum Laude at the Univeristy or Pretoria in 2020. Her research centres
around developing portfolio selection models with a specific focus on the theory and
implementation of an individualised risk objective and Socially Responsible Investing. Currently, she works as a software implementation engineer within the finance sector – designing, building,
implementing and maintaining customised solutions for the internal operations of
a bank. In addition to her industry work, Melissa works as a consultant for the
University of Pretoria, supervising and assessing undergraduate and postgraduate
research.

Nadia M. Trent, University of Waikato, School of Management and Marketing Operations |University of Pretoria, Department of Systems and Industrial Engineering

Nadia is a senior lecturer in supply chain management at the University of Waikato Management School. Her research focuses on the resilience of national and global supply chain systems and how these systems affect quality of life and equity within communities. With her background in engineering, she explores these topics using various data science and simulation modelling techniques.

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Published

2024-05-31

How to Cite

Van Niekerk, M., & Trent, N. . (2024). DO SOCIALLY RESPONSIBLE AND RISK-TAILORED PORTFOLIOS WIN? A COMPARATIVE ANALYSIS. The South African Journal of Industrial Engineering, 35(1), 72–87. https://doi.org/10.7166/35-1-2922

Issue

Vol. 35 No. 1 (2024): The South African Journal of Industrial Engineering

Section

General Articles

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