In the context of socially responsible investing, which of the following statements is incorrect?Group of answer choicesAll of the above are correct statements.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.)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.
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.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.)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.
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 statement is incorrect because the relationship between socially responsible investing and stock returns is not definitive. Some studies suggest that socially responsible investing can lead to similar or even higher stock returns compared to traditional investing. The impact on stock returns can vary based on numerous factors, including the specific strategies used, the time period considered, and the specific companies or industries involved.
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