Stone, Guerard, Gultekin, and Adams (2002)
Stone, Bernell K., John B. Guerard, Jr., Mustafa N. Gultekin, Greg Adams. "Socially Responsible Investment Screening: Strong Evidence of No Significant Cost for Actively Managed Portfolios." Working paper, Marriott School of Finance, Brigham Young University, October 2002.
Builds on earlier work by Guerard (see Guerard, 1997) but lengthens the time horizon and adds new quantitative models. Using KLD data and a proprietary quantitative model, the authors constructed screened and unscreened portfolios with similar risk characteristics for the 1984-1997 time period from a universe of approximately 1300 stocks. Screened portfolio performance was virtually identical to that of unscreened portfolios managed on otherwise similar principles.
For the full time period, an unscreened portfolio of the companies ranked in the top quartile by the quantitative model had a monthly Sharpe ratio of 0.28. Portfolios screened for defense, environment, nuclear, and a combination of all screens also had a Sharpe ratio of 0.28.
LK comment: This study received a Moskowitz Prize Honorable Mention in 2001.