RT Journal Article SR Electronic T1 Using Social Responsibility Ratings to Outperform the Market: Evidence from Long-Only and Active-Extension Investment Strategies JF The Journal of Investing FD Institutional Investor Journals SP 79 OP 96 DO 10.3905/joi.2014.23.1.079 VO 23 IS 1 A1 Greg Filbeck A1 Hunter M. Holzhauer A1 Xin Zhao YR 2014 UL https://pm-research.com/content/23/1/79.abstract AB In this article, the authors use KLD Research and Analytics (KLD) rankings from 1991 to 2009 to create three long-only portfolios: high-ranking “Top” stocks, “Shunned” stocks, and “Top and Shunned” stocks. They also construct three 130/30 active-extension portfolios, with 130% exposure in each of the three long-only portfolios and 30% exposure in a short portfolio of low-ranking “Bottom” stocks. The authors find positive, statistically significant abnormal returns for all six portfolios relative to their matched portfolios and the S&P 500. In addition, they find that the three 130/30 active-extension portfolios generally outperform the three long-only portfolios, including producing higher information ratios. As predicted, the highest-performing active-extension portfolio includes stocks for both Top companies and Shunned companies. Moreover, the performance for this 130/30 active-extension portfolio increased as the long and short positions were increased to 140/40 and 150/50. Thus, the results suggest that social responsibility ratings can be actively used to outperform the market. These findings further suggest that employing active-extension strategies that short stocks for companies with low social responsibility ratings may add additional abnormal returns.TOPICS: ESG investing, security analysis and valuation