Version 1
: Received: 6 July 2024 / Approved: 8 July 2024 / Online: 8 July 2024 (09:49:22 CEST)
How to cite:
Min, S. The Misalignment between the Strategic Asset Allocation and ESG Investment Target of Institutional Investors. Preprints2024, 2024070602. https://doi.org/10.20944/preprints202407.0602.v1
Min, S. The Misalignment between the Strategic Asset Allocation and ESG Investment Target of Institutional Investors. Preprints 2024, 2024070602. https://doi.org/10.20944/preprints202407.0602.v1
Min, S. The Misalignment between the Strategic Asset Allocation and ESG Investment Target of Institutional Investors. Preprints2024, 2024070602. https://doi.org/10.20944/preprints202407.0602.v1
APA Style
Min, S. (2024). The Misalignment between the Strategic Asset Allocation and ESG Investment Target of Institutional Investors. Preprints. https://doi.org/10.20944/preprints202407.0602.v1
Chicago/Turabian Style
Min, S. 2024 "The Misalignment between the Strategic Asset Allocation and ESG Investment Target of Institutional Investors" Preprints. https://doi.org/10.20944/preprints202407.0602.v1
Abstract
Environmental, social, and governance (ESG) investment has become a common trend in capital markets, and many institutional investors have publicly declared their long-term ESG investment target (ESGIT). This study focuses on investors who conduct strategic asset allocation (SAA) using composite indices but establish their ESGIT outside the SAA process. A mismatch could arise between investors’ planned and actual portfolios because they must pursue their ESGIT by asset selection, which inevitably makes the constituents of their portfolios different from those of composite indices. To scrutinize the potential existence of a misalignment between their SAA and ESGIT, this study analyzes actual stock and bond indices over the past decade using traditional mean-variance optimization. The results reveal significant differences between the expected and realized performances, and the misalignment is more significant when the analysis period is divided into two sub-periods: stable and volatile. Specifically, the results indicate that the efficient frontier constructed using ESG indices significantly differs from that constructed using composite indices, and that the difference between these two efficient frontiers becomes more significant during volatile periods. Furthermore, the results show that investors cannot meet their targets if their ESGIT is established outside the SAA process.
Copyright:
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
