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Trade Ethic


I need some help with the questions below:

1. Can a trader produce exceptional returns while simultaneously engaging in ethical behaviour?
2. Suggest incentives a financial services company can provide to influence ethical behavior of traders.

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1. Several studies on the question of ethical investing and its relation to returns have been conducted. The most famous is Havemann and Webster (1999). They argue that investment decisions that take investment into account do not seem to have any real affect on returns. They modify this concept by saying that the concept of ethical must be laid out: does it deal with the environment, labor practices, peace, or all of the above? Environmental portfolio indices seem to out perform portfolios that do not take this into account. In the UK, there is a slight performance edge (.11%) when an ethical index is used to make investment decisions.

Yet, this is not the end of the story. The downside to ethical investing is increased management cost, reduced portfolio diversity, high insurance premiums, and opportunity costs. The upside was that consumers, becoming more sensitive to these issues, are likely to chose an ethical firm over one that is amoral. The Havemann and Webster study showed that returns can increase (relative to a company) due to a better reputation, public support, happier employees, and, in some cases, government support. In general, ethical investment indices have slightly lower risk than those that do not take morals into account. There is some evidence that ethical funds have lower returns, but this depends on the sector, e.g. environmental indices do better than those focused on peace. The authors make it plain, however, that more research is needed, and their own conclusions are tentative.

In the work of Beal (et al), there is also the ...

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The following posting helps with problems involving trade ethic.