An Alternative Framework For The Optimization Of Socially Responsible Portfolios Applied To The Moroccan Stock Exchange

Abstract

The purpose of this article is to propose an alternative approach for portfolio optimization combining financial and ethical constraints as well as objective and subjective preferences of investors. This approach intends to support investors in the selection and optimization of the performance of financial and social portfolios. More precisely, we introduce the Analytic Hierarchy Process (AHP) to measure the ethical performance (EP) score of each asset considering the ethical criteria. Fuzzy multiple criteria decision making (FMCDM) is used to determine the overall financial quality score of the assets with respect to key financial criteria, i.e., short-term return, long-term return, and risk. The interactive fuzzy programming approach is also applied to support the investor’s decision, considering his subjective preferences. The robustness of our approach is tested through an empirical study involving the case of the Casablanca Stock Exchange (CSE). The results give evidence that the Socially Responsible (SR) portfolio performed similarly to the conventional one, as no significant differences were found in terms of return. However, the SR portfolio allows the investor to achieve their ethical goals with a slight financial sacrifice.