Theory of social returns in portfolio choice with application to microfinance

Abstract

We complement standard portfolio theory à la Markowitz by adding a social dimension. We distinguish between two main setups, taking social returns as stochastic in the first, but as deterministic in the second. Two main features need to be introduced: Every asset must be assigned a (distribution of) social return(s) and the investor has to cherish social returns. The former comes with measurement problems, whereas the latter is mainly a problem of choice of a suitable utility representation. The focus of this paper is on the theoretical fundamentals and the practical implications of social returns. We apply each version of the theoretical model to a different realm. In the deterministic setup, we look at an investor who faces a small number of assets: the S&P Euro Index, the EuroMTS Global Index, and the responsAbility Global Microfinance Fund, in which we assign a social return only to the microfinance investment fund. In the second application with stochastic social returns, we propose a new measure of social returns in microfinance and address the question concerning how microfinance investment funds should allocate funds to microfinance institutions.

Available Versions of this Item

• Theory of social returns in portfolio choice with application to microfinance. (deposited 08 Jun 2011 08:44) [Currently Displayed]
  • Theory of social returns in portfolio choice with application to microfinance. (deposited 23 Mar 2012 07:11)
    • Theory of social returns in portfolio choice with application to microfinance. (deposited 17 Sep 2012 14:21)