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Title: Governance and its impact on investors’ risk exposureLevel: Bachelor thesis in Business AdministrationAuthor: Marcus Wannberg and Markus GustafssonSupervisor: Peter LindbergDate: May, 2021 Aim: ―Investigate whether a portfolios negative asymmetric risk, from an investors perspective, is influenced by positive screening based on dynamic SRI, based on the ESG-factor governanceMethod: Construction of a hypothetical portfolio consisting of stocks, based on dynamic SRI and positive screening based on the ESG-factor Governance. Financial backtracking measures how the portfolio performed regarding asymmetric beta values, provided it was implemented during a historical period of time. The portfolio is reallocated according to predefined criteria in the beginning of each year during the historical period.Results: The constructed portfolio demonstrates a lower traditional beta value than the market for the time series as a whole, as well as for the first subperiod. The second subperiod demonstrates a higher traditional beta value. The portfolio's asymmetric beta value is consistently lower than the market. For the time series as a whole and the first subperiod, it’s lower at negative outcomes than for outcomes below the mean value. This is however not the case for the second subperiod, which is higher.Conclusions: The result of this study indicates that selection criteria and positive selection screening based on the ESG factor Governance, under certain conditions, can affect the asymmetric risk exposure of the portfolio. This conclusion also indicates that companies through active work focused on governance have the opportunity to reduce their cost of capital, as investors' required rate of return falls.Contribution of the thesis: Further developed insight regarding asymmetric risk analysis, and its practical application as well as the fact that a portfolio composed of a limited amount of assets potentially demonstrates lower systematic risk exposure than the market. Additionally, the method and criteria of the selection can affect asymmetric risk exposure.Suggestions for further research: We deem that further research is necessary, especially regarding if the other two ESG-factors have greater significance regarding the asymmetric risk exposure, as well as similar studies that focus on other time periods. Additionally, we also argue that further research within AMH and its paradigms is also necessary since random walk is questioned.Key words: Asymmetric risk, sustainability, ESG, beta value, dynamic SRI, positive screening, selection criteria, portfolio allocation and Governance. |
