Socially Responsible Investing (ESG)

Summary

Over the past few years, the world has seen a paradigm shift in caring for and trying to mitigate negative externalities. When it comes to the day-to-day operations of corporate entities, the term ESG (Environment, Social, and Governance) has been coined to categorically account for most externalities that often arise.

This global paradigm shift has also made its way over to the financial world. More asset managers and investors now realize their moral obligation to consider the consequences of their investments beyond risk and returns. However, irrespective of moral compass, all financial market participants are effected as it has now been well established that ESG has a direct impact on both risk and return.

At RiskLab, we are inspired by this trend of accountability in financial markets. To further this movement

Our Work

VIX

It is well known amongst asset managers that assets related to the CBOE’s Volatility Index, VIX,follow a sequential change. In particular, the underlying options would be first to move, then the VIXindex, then the VIX futures, then derivatives on the VIX such as ETFs. As one future project atRiskLab, we’d like to further explore these types of relationships.

Asset Allocation

In 2013, M. Escobar et al. studied minimum variance, equal-risk contribution, and1/N portfolio allocation strategies to find that under different market conditions, particularly crisisstates, optimality changes. It was thus proven that switching between portfolios according to saidmarket conditions produced better Sharpe and Omega ratios. By using neural networks, we’vesuccessfully generalized the scope of the project to being better suited at choosing the optimalallocation strategy. Further research along this direction is therefore desired.

Advisors

N/A

Partners

N/A