Bansal, Wu, and Yaron (2018)
Bansal, Ravi, Di (Andrew) Wu, and Amir Yaron. “Is Socially Responsible Investing A Luxury Good?” Working paper (University of Michigan), 2018.
We investigate the time variability of abnormal returns from socially responsible investing. Stocks with high social responsibility ratings significantly outperform low-ranked ones during good economic times, but significantly underperform during bad economic times. Rating reductions lead to temporarily lower abnormal returns—a feature more pronounced during good times. Short-term abnormal returns after positive CSR announcements are significantly positive during good times but negative during bad times. These findings are consistent with time-varying, wealth-dependent preferences toward SRI, re- sulting in high-ranked stocks behaving similarly to luxury goods. Their returns are indeed significantly correlated with luxury consumption and sales growth of luxury-good retailers.