In the context of socially responsible investing, which of the following statements is incorrect?Group of answer choicesAll of the above are correct statements.Although socially responsible investing can have a positive effect on employees, the community, and/or the environment, academic studies provide clear evidence that investors engaged in socially responsible investing earn lower stock returns.A disadvantage of divestment as a socially responsible investing strategy is that it does not provide portfolio managers the opportunity and the leverage to interact with the affected companies to effectuate positive changes.Divestment refers to decisions by portfolio managers not to hold certain stocks (for example, tobacco stocks, weapons manufacturers, fossil fuels, etc.)
Question
In the context of socially responsible investing, which of the following statements is incorrect?Group of answer choicesAll of the above are correct statements.Although socially responsible investing can have a positive effect on employees, the community, and/or the environment, academic studies provide clear evidence that investors engaged in socially responsible investing earn lower stock returns.A disadvantage of divestment as a socially responsible investing strategy is that it does not provide portfolio managers the opportunity and the leverage to interact with the affected companies to effectuate positive changes.Divestment refers to decisions by portfolio managers not to hold certain stocks (for example, tobacco stocks, weapons manufacturers, fossil fuels, etc.)
Solution
The incorrect statement is: "Although socially responsible investing can have a positive effect on employees, the community, and/or the environment, academic studies provide clear evidence that investors engaged in socially responsible investing earn lower stock returns."
This is not necessarily true. While some studies suggest that socially responsible investing may lead to lower returns, others have found no significant difference in returns, and some have even found higher returns for socially responsible investments. The impact of socially responsible investing on returns can depend on a variety of factors, including the specific strategies used, the time period considered, and the specific social issues targeted. Therefore, it is incorrect to state categorically that socially responsible investing leads to lower returns.
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