Abstract
Efficiency of SRI portfolios is commonly assessed based on an inconclusive risk-return ratio. Wepropose to approach the efficiency of portfolios with the notion of instability. Unstable portfolios arecharacterized by higher transaction costs and human resources costs that justify search for more stableportfolios. We examine the instability of SRI portfolios from the perspective of behavioral finance. Basedon data from incentivized experiments with 153 financial professionals and 233 students, we compare abaseline treatment to a ranking treatment in which participants received feedback regarding their aver-age investment in SRI assets. We found that SRI portfolios had significantly lower instability: portfolioswith a majority of SRI shares exhibited less instability in both treatments compared to conventionalportfolios. Moreover, in the ranking treatment subjects invested more in SRI assets than in the baseline.In addition, the experiment revealed the convergence of professionals’ and students’ behavioral patterns.