Portfolio instability and socially responsible investment: Experiments with financial professionals and students

Efficiency of SRI portfolios is commonly assessed based on an inconclusive risk-return ra-tio. We propose to approach the efficiency of portfolios with the notion of instability. Un-stable portfolios are characterized by higher transaction costs and human resources costs that justify search for more stable portfolios. We examine the instability of SRI portfolios from the perspective of behavioral finance. Based on data from incentivized experiments with 153 financial professionals and 233 students, we compare a baseline treatment to a ranking treatment in which participants received feedback regarding their average invest-ment in SRI assets. We found that SRI portfolios had significantly lower instability: port-folios with a majority of SRI shares exhibited less instability in both treatments compared to conventional portfolios. Moreover, in the ranking treatment subjects invested more in SRI assets than in the baseline. In addition, the experiment revealed the convergence of professionals' and students' behavioral patterns. (c) 2023 Elsevier B.V. All rights reserved.