By matching ESG scores (0-100) to selected stocks in the S&P 500 (from Sustainalytics), assign different weights to each stock in the portfolio based on their ESG score. Calculate the daily returns of the resulting portfolio from 2013 to 2018. A higher lamdba means a higher preference towards ESG stocks. Our findings confirm the intuition that non-ESG portfolios deliver higher returns due to the reason that ESG stocks have higher demand and are overbought.
| Lambda vs Sharpe Ratio | Return vs Volatility |
|---|---|
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Example Return Stream:
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