Return and Volatility performance comparison of Ethical and Non-ethical publicly-listed financial services companies

Abstract

This study compares return and volatility performance of ethical and non-ethical publiclylisted financial companies through their long-memory and volatility asymmetry properties. The paper finds that the volatility of the daily stock price returns for both groups of financial companies can be used to predict their future values. Both also follow market fundamentals by exhibiting asymmetric volatility response properties, are not immune to negative shocks and experience losses in economic downturns. However, an interesting finding shows that ethical financial companies generally have higher returns and lower volatility than their nonethical counterparts. This can be attributed to the positive perception of the investing public on ethical companies, which invites more potential investors providing them with steady investment flows. This study encourages fund managers and investors in continuously adding ethical investment instruments and creating portfolio related to corporate social responsibility initiatives. Findings can also offer more understanding in the properties of ethical financial companies, and open future channels of research to academicians and researchers.