Interactive Socially Responsible Portfolio Selection: An Application to the Spanish Stock Market

Abstract

During the late years, given the causes of the 2008 financial crisis, ethical, social, environmental and governance concerns have become relevant investment decision criteria for both individual and institutional investors. However, while a diverse set of models has been developed to support investment decision-making based on financial criteria, models including also socially responsible criteria are rather scarce. The model proposed in this paper is intended to be an individual investment decision making tool for stocks‘ portfolio selection, taking into account the subjective and individual preferences about different financial and socially responsible features of a particular investor. In this sense, the first problem to be solved is the measurement of the social responsibility degree of financial assets. In this work, we propose the construction of synthetic indicators based on the double reference point scheme. Once the social responsibility degree of the assets has been measured, multiple criteria portfolio selection model is formulated, which includes, together with the classical financial criteria, a social responsibility criterion based on the previously obtained synthetic indicators. The resulting model is solved using a mixed reference point – classification scheme. In order to illustrate the suitability of the synthetic indicators built, and the applicability of the proposed investment decision making model, an empirical study on a set of Spanish domiciled stocks is presented.

Acknowledgments

This research has been partially supported by the Regional Government of Spain (PAI group SEJ-445 and Research Project PR09-FQM-5001), and by the Spanish Ministry of Science and Innovation (Research Projects ECO2011-28927 and ECO2013-47129-C4-2-R). The authors wouldlike to thank the referees for all their comments, corrections and suggestions.