THE ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG) CRITERIA AND ITS IMPACT ON THE PORTFOLIO PERFORMANCE

ABDUL QOYUM, SEI, M.Sc.Fin, NIM. 17300016063 (2020) THE ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG) CRITERIA AND ITS IMPACT ON THE PORTFOLIO PERFORMANCE. Doctoral thesis, UNIVERSITAS ISLAM NEGERI SUNAN KALIJAGA.

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Abstract

Islamic investment and ESG are two alternatives for investors that can be selected either as substitutive or by combining both markets. The objectives of this study are: 1) to comprehensively explore and examine the impact of double screening (Islamic ESG screening) on portfolio performance; 2) to comprehensively explore and examine the relationship between ESG and Islamic Screening with default probability; and 3) to explore the impacts of systemic risk, size, book to market value, profitability, investment, and momentum on Islamic ESG, ESG, and Islamic portfolios, and to identify if there is any difference in character among the three. This study uses a selfcomposed portfolio from 2011-2018 based on the Fama and French Six Factor Models. From the portfolio, the arithmetic means of excess return and Merton Model were then employed. For further understanding of the characteristics of the Islamic and ESG portfolios, the six factors that are implemented in the Fama and French Model were utilized. From the statistical testing, this study revealed that there is no difference in portfolio return between the Islamic portfolio and the ESG portfolio, the Islamic ESG portfolio and the Islamic portfolio, or the Islamic ESG portfolio and the ESG portfolio. In addition, from the analysis, this study found that the Islamic ESG portfolio in Indonesia and Malaysia has lower default probability compared to the Islamic and ESG portfolios. For the performance determinant, this study empirically evidenced that, overall, for all portfolios, namely Islamic, ESG, and Islamic ESG portfolio, MRP, SMB, and HML are the most powerful variables in terms of impact on portfolio return. The study also observed that the Islamic ESG portfolio provides better performance compared to the Islamic and ESG portfolios, both in Indonesia and Malaysia. This was indicated by the relationship of each variable, namely MRP, SMB, HML, RMW, CMA, and UMD. These findings suggest that investors can consider investing in both markets, or even combining the two markets, in their portfolio. For the policymakers, it provides reasoning for establishing an Islamic ESG Index consisting of Islamic ESG firms.

Item Type: Thesis (Doctoral)
Additional Information: Prof. Dr. Hadri Kusuma, MBA
Uncontrolled Keywords: Islamic Portfolio, Islamic ESG Portfolio, ESG Portfolio, Fama and French, Merton Model.
Subjects: Ekonomi Islam
Divisions: Pascasarjana > Disertasi > Study Islam
Depositing User: Drs. Mochammad Tantowi, M.Si.
Date Deposited: 03 Jul 2020 10:06
Last Modified: 03 Jul 2020 10:06
URI: http://digilib.uin-suka.ac.id/id/eprint/39628

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