Investment Performance of Component Stocks from the Respect Sustainability Index at the Warsaw Stock Exchange

In this paper, we analyze the profitability of investments in stocks from the RESPECT sustainability index at the Warsaw Stock Exchange (WSE) since its launch in year 2009 until the year 2018. We calculate raw returns for individual component stocks, estimate their beta coefficients as well as assess their performance on the risk-adjusted basis using such measures as the modified Sharpe ratio (MSR) and the Certainty Equivalent (CEQ) returns. Our results indicate that the profitability of investing in the socially responsible investments (SRI) stocks from the RESPECT index is on average higher than the corresponding returns of the benchmark broad market index WIG, although the differences are rather marginal. Nevertheless, we can conclude that the financial market in Poland did not penalize the investors for allocating their funds in the SRI companies, which is the finding consistent with previous studies using the data from other countries (see e.g. Orlitzky et al. (2003)). We also investigated the indexing effect i.e. we investigate if including or removing stocks into RESPECT index results in higher return (in the day of announcement, day of actual change of components of the index, or in longer horizon). However we found very little evidence of indexing effect existence in the analysed data sample. Overall, our results provide new empirical evidence for the SRI stocks from the market in Poland and show the importance of SRI stocks in investors' portfolios, which includes also the risk-adjusted performance perspective