A0687
Title: On the importance of ESG pillars in asset allocation: Evidence from simulated portfolios
Authors: Alessandra Amendola - University of Salerno (Italy) [presenting]
Luigi Aldieri - University of Salerno (Italy)
Vincenzo Candila - University of Salerno (Italy)
Abstract: Over the past two decades, corporate Environmental, Social, and Governance (ESG) pillars have received increasing attention from both theoretical and institutional perspectives. In principle, the asset allocation process is expected to favor firms with stronger ESG profiles, as both private and institutional investors are assumed to incorporate ESG factors into their investment decisions. However, empirical evidence on the actual impact of ESG considerations on portfolio choices remains mixed, and the effectiveness of ESG integration continues to be debated in the literature. The contribution to the debate is by analyzing the composition of optimal portfolios, each consisting of 30 assets equally distributed across ESG rating categories: 10 Low, 10 Medium, and 10 High-rated stocks. To ensure robustness, 10,000 such portfolios are simulated, each built from a random selection of the top 200 NASDAQ constituents by market weight. Conditional covariance matrices are estimated using the dynamic conditional correlation (DCC) model, and portfolio weights are derived according to the global minimum variance, maximum diversification, and maximum decorrelation criteria, along with the benchmark equally weighted portfolio.
