Macro Asset Allocation with Social Impact Investments
Using a unique dataset of 50 listed companies that meet the majority of the OECD
requirements for social impact investments, we construct a social impact finance stock index and
investigate how investing in social impact firms can contribute to portfolio risk-return performance.
We build portfolios with three dierent methodologies (naïve, Markowitz mean-variance optimization,
GARCH-copula model), and we study the performance in terms of returns, Sharpe ratio, utility,
and forecast premium based on a constant relative risk aversion function for investors with dierent
levels of risk aversion. Consistent with the idea that social impact investment can improve portfolio
risk-return performance, the results of our macro asset allocation analysis show the importance of a
large fraction of investor portfolios’ stake committed to social impact investments.